A few observations from the day's presentations:
- Despite occasional calls for formula apportionment at the international level, it likely would not work. It would be more difficult to get all countries to agree on this approach than it has been for the U.S. states. The diversity of economies and needs of developed versus even emerging countries are too great to think that a consensus approach can be reached. Transfer pricing will likely remain the standard, although countries may tighten the rules.
- There will be challenges in creating a territorial system in the U.S. In addition to politics of reaching a consensus, there is the issue of revenue neutrality and whether it is wise to employ a system different from other industrialized countries that tend to use a dividend exemption approach.
- Focus of governments will continue to be on taxing intangibles.
- The Mayo decision of the US Supreme Court likely gives the IRS greater authority on how it writes transfer pricing rules.
- The OECD BEPS (Base Erosion and Profit Shifting) report issued earlier this year should be reviewed.
- Many factors play a role in how multistate income is apportioned among states - nexus, sourcing, throwback, apportionment factors, and reporting system (combined/unitary or separate).
- Given the numerous complexities in apportioning multistate income in some economically or accounting-wise justifiable manner and the relatively low amount of tax it generates, perhaps states should just repeal their corporate income taxes.
What do you think?
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