Foreign direct investment (FDI); in developing countries has been
increasing at an unprecedented rate, and the profitability of the
operations of the investing firms in poor regions like Sub-Saharan
Africa is extraordinarily high. Yet at the same time there is growing
evidence that transnational corporations (TNCs); are paying less and
less in terms of tax. The developing countries in particular have suffered
from this —it has been estimated that developing country governments
lose at least US$35 billion a year of revenue through tax
avoidance practices. This paper presents empirical evidence and a
proposal for applying a unitary tax system on the profits of TNCs.
Such a system would eliminate one of the most powerful mechanisms
at the disposal of TNCs for illegally avoiding tax payments—transfer pricing. The paper concludes by arguing that a proposal for a unitary tax system on a worldwide basis may be sufficient to unblock the negotiations on a multilateral investment code.