Allocating Business Profits for Tax Purposes: A Proposal to Adopt a Formulary Profit Split

Authors

Reuven S. Avi-Yonah, University of Michigan Law SchoolFollow
Kimberly A. Clausing, Reed CollegeFollow
Michael C. Durst, Steptoe & Johnson LLPFollow

Document Type

Article

Publication Date

1-2009

Abstract

The current system of taxing the income of multinational firms in the United States is flawed across multiple dimensions. The system provides an artificial tax incentive to earn income in low-tax countries, rewards aggressive tax planning, and is not compatible with any common metrics of efficiency. The U.S. system is also notoriously complex; observers are nearly unanimous in lamenting the heavy compliance burdens and the impracticality of coherent enforcement. Further, despite a corporate tax rate one standard deviation above that of other OECD countries, the U.S. corporate tax system raises relatively little revenue, due in part to the shifting of income outside the U.S. tax base.

Recommended Citation

Avi-Yonah, Reuven S. "Allocating Business Profits for Tax Purposes: A Proposal to Adopt a Formulary Profit Split." K.A.Clausing and M.C.Durst, co-authors. Fla. Tax Rev. 9, no. 5 (2009): 497-553.