This article deals with the conflict between the different concepts of international profit distribution. There is a broad understanding that separate accounting is far from perfect. The separate-entity approach is criticized as it disregards economic integration and fails to account for synergy effects. The conceivable alternative – referred to as single-entity approach or unitary taxation – relies on formula apportionment that is seen as an arbitrary method of profit distribution. Therefore, one might come to the conclusion that both systems are flawed from a theoretical viewpoint as well as from their practical implementation. An alternative would be to regard separate accounting as the basic system and to supplement it with aspects of unitary taxation where necessary. By combining these methods one can benefit from the advantages of both while to some extent limiting the disadvantages of each.
Intertax