This thesis argues that one type of multinational entity the multinational bank
poses particularly significant challenges to the international tax regime in terms of its
current profit allocation rules. Multinational banks are a unique subset of
multinational entities, and as a consequence of their unique traits, the traditional
international tax regime foes not yield an optimal interjurisdictional allocation of
taxing rights. The opportunity for tax minimisation, achievable because of the unique
traits, and realised through exploitation of the traditional source and transfer pricing
regime, results in a jurisdictional distribution of taxing rights which does not reflect economic reality.
There are two distinct ways in which the traditional international tax regime fails to
reflect economic activity. The first way that economic activity may not be reflected
in the distribution of the taxing rights to income from multinational banking is
through the application of traditional source rules. The traditional sources rules
allocate income where transactions are completed rather than where the
intermediation services are arranged. As a result of their unique commercial role as
financial intermediaries, by separating intermediary economic activity from legal
transactions with third parties, multinational banks may distort the true location of the
activity giving rise to income.
The second way in which the traditional tax regime may fail to reflect economic
activity is through the traditional transfer pricing regime requiring related or internal
transaction to be undertaken at an arms length price. The arms length pricing
requirement is theoretically deficient in its failure to recognise the highly integrated
nature of multinational banking. In practice, the arms length pricing requirement is
also difficult, if not impossible, to apply to multinational banks because of the
requirement of comparability. The difficulties associated with the current model have
resulted in a subtle move by multinational banks towards global formulary
apportionment.
This thesis concludes that, for the international taxation of multinational banks, the current source regime should be replaced with a system that allocates profits for tax
purposes on the basis of income source, with source determined using a unitary
taxation or global formulary apportionment system. It is argued that global formulary
apportionment is a theoretically superior model that provides both jurisdiction to tax
and allocated profits on the basis of the economic activity that generates the income.
| Identifer | oai:union.ndltd.org:ADTP/217191 |
| Date | January 2003 |
| Creators | Sadiq, Kerrie, mikewood@deakin.edu.au |
| Publisher | Deakin University. School of Law |
| Source Sets | Australiasian Digital Theses Program |
| Language | English |
| Detected Language | English |
| Rights | http://www.deakin.edu.au/disclaimer.html), Copyright Kerrie Sadiq |
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