Globalization of the Corporate Income Tax: The Role of Allocation

The internationalization of business activity has created significant pressures on national corporate income tax systems throughout the world. Rather than abandon the corporate income tax field, it is predicted that governments will develop international arrangements that will further globalize the corporate income tax. This paper assesses the merits and limitations of methods used to allocate corporate income to jurisdictions according to formulas measuring business activity. It argues that such methods are already being used as part of transfer pricing regimes and are likely to be enhanced over time.