User:Transferpricer/Profit allocation methods

Profit Allocation Methods are used to attribute a corporation's net profit or loss before tax to tax jurisdictions.

Multinational corporations in the 21st century are highly integrated organizations that can locate operations or parts of operations anywhere in the world. Global communications technology is an important enabling factor. The multinational no longer operates as a series of separate legal entities to which it is practical to assign functions, assets and risks. For example, one highly valuable organizational function can be split across several tax jurisdictions: a manager in one jurisdiction, an administrator in a second and operatives in a third.

As multinational corporations have become more international, tax authorities have become more national. Tax authorities have introduced more rules on profit allocation methods to ensure that their jurisdiction receives what they perceive to be their fair share of the multinational corporation's global taxable profit.

The methods differ in simplicity and perceived fairness.

Methods
This is used by Canada to apportion total Canadian profits to its provinces, which compete on Corporation tax.
 * Formula Apportionment
 * Transfer Pricing