Attribution of profits is a principle used to determine the taxable profits of a multinational enterprise by allocating income and expenses to different parts of the business based on their economic activities and functions. This ensures that profits are taxed in the jurisdiction where the value is created, aligning with international tax standards and preventing tax base erosion and profit shifting.

Attribution Of Profits

Attribution of profits

Principle of attribution

taxable profits

multinational enterprise

allocating income

Expenses allocation

economic activities

Business functions

Tax jurisdiction refers to the authority granted to a government to impose and collect taxes within a defined geographical area or over certain types of entities or transactions. It is crucial in determining which government has the right to tax a particular activity, income, or entity, impacting both domestic and international tax planning and compliance.

Tax Jurisdiction

Value creation is the process by which businesses generate economic, social, or environmental benefits that exceed the costs associated with delivering them, ultimately enhancing stakeholder wealth. It involves understanding customer needs, leveraging resources efficiently, and fostering innovation to achieve sustainable competitive advantage.

Value Creation

international tax standards

Tax base erosion refers to the reduction of the taxable base due to practices that shift profits to low or no-tax jurisdictions, thereby undermining a country's tax revenue. It is a significant concern for governments as it impacts their ability to fund public services and maintain fiscal stability.

tax base erosion

Profit shifting is a strategy used by multinational corporations to reduce their tax liabilities by moving profits from high-tax jurisdictions to low-tax jurisdictions. This practice exploits differences in tax rates and regulations across countries, often leading to significant tax base erosion in higher-tax countries.

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