Taxation of multinational banks : using formulary apportionment to reflect economic reality (Part 2)

As stated in Part 1 of this article, formulary appointment does not attempt to undertake a transactional division of a highly integrated multinational entity; rather, it allocates income to the jurisdictions based on economically justifiable formula. This article argues that the unitary taxation model is superior to the current arms-lenght model for the taxation of multinational banks despite significant implementation, complicance and enforcement issues. Part one of the article gave some background on the taxation of multinational banks, followed by a discussion of their uniqueness, and the theoretical benefits of the unitary tax model for multinational banking. Part 2 below covers the practical implications of accepting formulary apportionment as an 'optimal' regime for taxing multinational banks.

The taxation of multinational banking income : is the traditional rationale correct?

This article argues that multinational banks have characteristics which are unique and distinguishable from traditional multinational entities. The first distinguishing feature is the unique nature of the services and consequent products supplied by multinational banks, which are aimed at meeting client global demand. The second distinguishing feature is the non-traditional organisational structure that is adopted. This structure, also designed to meet client global demand, introduces issues previously not recognised in the traditional taxation system, which is designed for the structure of traditional multinational entities. The unique differences between traditional multinational entities and multinational banks means there may be the need for a distinct international tax regime. It is argued that there are “outmoded economic assumptions” upon which the present tax laws relating to multinational banks are based. An examination of the unique nature of multinational banks leads to the conclusion that the appropriate tax treatment of these banks is different from the appropriate tax treatment of multinational entities generally.

The traditional rationale of the arm’s length approach to transfer pricing : should the separate accounting model be maintained for modern multinational entities?

This article examines the current transfer pricing regime to consider whether it is a sound model to be applied to modern multinational entities. The arm's length price methodology is examined to enable a discussion of the arguments in favour of such a regime. The article then refutes these arguments concluding that, contrary to the very reason multinational entities exist, applying arm's length rules involves a legal fiction of imagining transactions between unrelated parties. Multinational entities exist to operate in a way that independent entities would not, which the arm's length rules fail to take into account. As such, there is clearly an air of artificiality in applying the arm's length standard. To demonstrate this artificiality with respect to modern multinational entities, multinational banks are used as an example. The article concluded that the separate entity paradigm adopted by the traditional transfer pricing regime is incongruous with the economic theory of modern multinational enterprises.

Corporations Act 2001 s 459G : application to set aside statutory demand

The application before the court in Millerview Constructions Pty Ltd v Palmer Plumbing Pty Ltd [2008] QSC 005 raised a significant question regarding the appropriate construction of s 459G of the Corporations Act 2001 (Cth) (the Act). The decision emphasises the importance of ensuring that any application to set aside a statutory demand must be served in a timely way on the creditor at the creditor’s address for service as stated in the statutory demand, or in strict compliance with another manner authorised by the Act.

Taxation of multinational banks : using formulary apportionment to reflect economic reality

The taxation of multinational banks is currently governed by general principles of international tax. However, there are characteristics exclusive to multinational banks that may warrant consideration of a separate taxing regime, as the current system does not produce a result that accurately reflects the economic source of the income or the location of the economic activity. The suggested alternative is unitary taxation using global formulary apportionment.

Multinational contracting into Australia: Developing Dunning's theory and case study design

In response to the need to leverage private finance and the lack of competition in some parts of the Australian public sector infrastructure market, the Australian Federal government has demonstrated its desire to attract new sources of in-bound foreign direct investment (FDI) by multinational contractors. This study aims to update progress towards an investigation into the determinants of multinational contractors’ willingness to bid for Australian public sector major road and bridges. This research deploys Dunning’s eclectic theory for the first time in terms of in-bound FDI by multinational contractors into Australia. Elsewhere, the authors have developed Dunning’s principal hypothesis to suit the context of this research and to address a weakness arising in this hypothesis that is based on a nominal (yes or no) approach to the ownership, location and internalisation factors in Dunning's eclectic framework and which fails to speak to the relative explanatory power of these factors. The authors have completed a first stage test of this development of Dunning's hypothesis based on publically available secondary data, in which it was concluded tentatively that the location factor appears to have the greatest explanatory power. This paper aims to present, for the first time, a further and novel development of the operation of Dunning's eclectic paradigm within the context of multinational contracting, as well as a preview of the design and planned analysis of the next empirical stage in this research concerning case studies. Finally, and beyond the theoretical contributions expected, other expected contributions are mentioned concerning research method and practical implications.

Debts “incurred” by receivers, administrators and liquidators : the case for a harmonised construction of ss 419, 443A and 556(1)(a) of the Corporations Act

This article analyses the inconsistent approaches taken by courts when interpreting provisions of the Corporations Act which address debts or expenses “incurred” by receivers, administrators and liquidators. The article contends for a consistent construction of these provisions which will enable the legislation to operate (as was intended) for the benefit of persons who supply goods, services or labour to companies in external administration. The article explains how and why debts can be “incurred” by insolvency practitioners continuing on pre-existing contracts. Specifically, the article contends for a construction of ss 419 and 443A of the Corporations Act which renders receivers and administrators personally liable for certain entitlements of employees (eg, wages and superannuation contributions) which become due and payable by reason of the decision of a receiver or administrator to continue a pre-existing contract rather than terminate it.

Environmental incidents in a developing country and corporate environmental disclosures : a study of a multinational gas company

Purpose – The purpose of this paper is to examine the environmental disclosure initiatives of Niko Resources Ltd – a Canada-based multinational oil and gas company – following the two major environmental blowouts at a gas field in Bangladesh in 2005. As part of the examination, the authors particularly focus on whether Niko's disclosure strategy was associated with public concern pertaining to the blowouts. Design/methodology/approach – The authors reviewed news articles about Niko's environmental incidents in Bangladesh and Niko's communication media, including annual reports, press releases and stand-alone social responsibility report over the period 2004-2007, to understand whether news media attention as proxy for public concern has an impact on Niko's disclosure practices in relation to the affected local community in Bangladesh. Findings – The findings show that Niko did not provide any non-financial environmental information within its annual reports and press releases as a part of its responsibility to the local community which was affected by the blowouts, but it did produce a stand-alone report to address the issue. However, financial environmental disclosures, such as the environmental contingent liability disclosure, were adequately provided through annual reports to meet the regulatory requirements concerning environmental persecutions. The findings also suggest that Niko's non-financial disclosure within a stand-alone report was associated with the public pressures as measured by negative media coverage towards the Niko blowouts. Research limitations/implications – This paper concludes that the motive for Niko's non-financial environmental disclosure, via a stand-alone report, reflected survival considerations: the company's reaction did not suggest any real attempt to hold broader accountability for its activities in a developing country.

Media pressures and corporate disclosure of social responsibility performance information : a study of two global clothing and sports retail companies

This paper investigates the social and environmental disclosure practices of two large multinational companies, specifically Nike and Hennes&Mauritz. Utilising a joint consideration of legitimacy theory and media agenda setting theory, we investigate the linkage between negative media attention, and positive corporate social and environmental disclosures. Our results generally support a view that for those industry‐related social and environmental issues attracting the greatest amount of negative media attention, these corporations react by providing positive social and environmental disclosures. The results were particularly significant in relation to labour practices in developing countries – the issue attracting the greatest amount of negative media attention for the companies in question.

Setting aside default judgment - whether judgment regularly or irregularly entered - service under Corporations Act 2001 (Cth) s109X(1) - requirements for affadavit of service

In Hill v Robertson Suspension Systems Pty Ltd [2009] QDC 165 McGill DCJ considered the procedural requirements for the service of originating process on a company, and for proving that service for the purpose of obtaining default judgment.The judge’s views adopt a strict and technical construction of the requirements for an affidavit of service under r 120(1)(b). Though clearly obiter, they may well affect the approach taken on applications to enter or set aside default judgments in the lower courts. Pending further judicial consideration of the issue, it is suggested the prudent course is to ensure that the deponent of an affidavit for service effected under s 109X(1)(a) of the Act deposes not only to the location of the registered office of the company but also, at a minimum, provides the source of that information.

Arm’s length pricing and multinational banks : an old fashioned approach in a modern world

In “Arm’s Length Pricing and Multinational Banks: An Old Fashioned Approach in a Modern World”, Kerrie Sadiq, describes the high level of integration of multinational financial institutions and argues that treating each element within a given operation as a separate entity for transfer pricing purposes is not economically or legally realistic. She proposes instead formulary apportionment as a device for managing this complexity.