Unitary taxation – initial questions

Trying to put together a test system, I find that it is trivial to put together one for a very simple case where one looks only at high-level figures. Once it gets more complex, however, there are many areas where there is a choice to be made about how to treat certain situations.

I don’t want to build a straw man of a system, so I’d like to flag up some of these areas to get comments to enable me to build a more robust system.

These are just initial questions, and I haven’t yet come up with answers to many of them.

I’m going to break it down into four main areas, each with their own blog post:

1) Defining the Unitary Business
2) Identifying Assets
3) Identifying Labour
4) Allocating Sales

All thoughts welcome.

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7 thoughts on “Unitary taxation – initial questions

  1. Some random thoughts…

    1. Treatment of pre-trading losses and post-trading wind-down costs.
    2. In fact treatment of losses generally. If you adopt a (limited) claw-back approach, from whom do you claw back?
    3. Foreign exchange would appear to muck things up horribly. What rate do you translate things at? What do you do when rates move dramatically?
    4. Does this approach discriminate against manufacturing locations (China, etc), because until goods are shipped outside the group, there’s no sale & no profit?
    5. We talked before about asset valuations. It seems that they’ll need to be at FV. However, typically they won’t be at FV in the accounts.
    6. Mightn’t the formula encourage a race to the bottom, because countries with low tax rates will see inward investment of assets and pointless employees being hired to boost the numbers?
    7. With assets being part of the formula, there’s an even bigger incentive for countries to convince companies to invest on their turf rather than somebody else’s (preferably if it brings employees too). So does this mean all bets are off on state aid rules?
    8. Would there be any provision for countries where funds can’t be repatriated?
    9. Last one, I promise. In year 1, business buys subsidiary which buys a factory in Bangladesh. Sells £10bn of shirts to a fellow subsidiary in a tax haven. In year 2, it closes the Bangladeshi factory, sacks all the workers and liquidates the Bangladeshi company. In year 3, it sells all the shirts in the UK. How does Bangladesh get its tax revenues?

    • Thanks for this lot, I’ll bring them into the appropriate posts.

      I think there might need to be a fifth post, for how the system works as a tax system across different years and entities – can one Unitary Business surrender losses to another, for example; or, as you say, who would you claim repayment from if you can carry losses back?

  2. Hi Andrew,

    I’m very interested in this and will look forward to the outcome. I tried something of the more trivial type a while ago, at http://martinhearson.wordpress.com/2013/04/25/unitary-taxation-barclays-and-africa/

    I am just wondering why all of this is written in the conditional tense, as a hypothetical. Is there a reason why you need to build a test from scratch, rather than starting from the detail of actual formulary apportionment systems, in particular the US? (I would expect them to have an answer to the whisky question!)

    Best,
    Martin

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