The Politics of International Tax: The Case for Global Formulary Apportionment in the Finance Sector

Kerrie Sadiq
Multinational financial institutions (MNFIs) play a significant role in financing the activities of their clients in developing nations. Consistent with the 'follow-the-client' phenomenon which explains financial institution expansion, these entities are increasingly profiting from activities associated with this growing market. However, not only are MNFIs persistent users of tax havens but also, more than other industries, have the opportunity to reduce tax through transfer pricing measures.
more » ... pricing measures. This paper establishes a case for an industry specific adoption of unitary taxation with formulary apportionment as a viable alternative to the current regime. In doing so, it considers the practicalities of such an implementation by examining both the definitional issues and possible formula for MNFIs. This paper argues that, while there would be implementation difficulties to overcome, the current domestic models of formulary apportionment provide important guidance as to how the unitary business and business activities of the MNFI should be defined as well as the factors that should be included in an allocation formula, along with the appropriate weighting. As such, this paper concludes that unitary taxation with formulary apportionment is a viable industry specific alternative for the MNFIs.