A proposal for unitary taxes on the profits of transnational corporation

Foreign direct investment (FDD in developing countries has been increasing at an unprecedented rate, and the profitability of the operations of the investing firms in poor regions like Sub-Saharan Africa is extraordinarily high. Vet at the same time there is growing evidence that transnational corporations (TNCs) are paying less and less in terms of tax The developing countries in particular have suffered from this —it has been estimated that developing country governments lose at least US$35 billion a year of revenue through tax avoidance practices. This paper presents empirical evidence and a proposal for applying a unitary tax system on the profits of TNCs. Such a system would eliminate one of the most powerful mechanisms at the disposal of TNCs for illegally avoiding tax payments— transfer pricing. The paper concludes by arguing that a proposal for a unitary tax system on a worldwide basis may be sufficient to unblock the negotiations on a multilateral investment code.