International Taxation and Economic Substance

This article argues that the “independent entity principle” is a basic flaw in the current system for taxing multinational enterprises (MNEs), creating problems especially for developing countries, which the OECD/G20 Base Erosion and Profit Shifting initiative has failed to resolve; it describes three alternative approaches that could be adopted to move towards a unitary approach to MNE taxation, and considers the prospects for the current transitional period.