Unitary taxation / formulary apportionment
Unitary taxation, delivered through formulary apportionment, is an alternative to today's separate-accounting system. Instead of taxing each group entity on its own booked profit, it pools the group's worldwide profit and divides it between countries using a formula based on real economic factors such as employees, sales and assets. The effect is that a company can no longer concentrate taxable profit in a low-tax haven with little real activity, because the formula would allocate almost nothing to a haven that has few staff, few assets and few sales, and more to the countries where the work and customers actually are. The EU's proposed CCCTB (Common Consolidated Corporate Tax Base) was a version of this. Critics note it would require rare international agreement on both the formula and the tax base.
ByLoopholeKiln EditorialPublished
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Example: a group earns €10bn worldwide with 30% of staff in Germany, 20% of sales in the UK and 10% of assets in France; under formulary apportionment each country taxes a share matching those factors, rather than all the profit landing in a haven.
Why it matters to a small business: unitary taxation would remove the very thing that lets multinationals shift profit away from the countries where you and your customers are. In effect you already operate on a unitary basis: you are taxed where you operate, because you have nowhere else to book profit.