Depends, when the corporation is a multinational, then they can evade local taxes by various tricks and send all the profits outside the country. Thus it is necessary to close this loophole, to keep the tax money in the source country.
How would that work in practice? The subsidiary in country A buys all their services from HQ with the price just so happening to consume the profits. How do you tax that without essentially stopping international collaboration?
That is the core of the problem. This is the only thing that people working on gafa tax evasion schemes should be working on day and night, and i’m pretty sure they’d get some help from the US tax department.
I can’t believe there aren’t ways to detect when a subsidiary buys services from HQ at abnormal prices.
Tax agencies argue about the fair value of assets and services all the time. Companies are already forced to do this when estimating VAT among subsidiaries.
So while it is a problem, its not a new one - nor an unsolvable one.
At some extreme point (like Starbucks for example) you can just declare it fraud and calculate an appropriate amount of tax they should pay and make them pay. Finance is the only legal area I know where we apply everything by the letter of the law and not the spirit of it, that concept did apply for torrent sites for example, if you only base it on technicality, they are legal.
