What does the unitary theory focus on?

The unitary theory focuses on the practical business realities of corporations, particularly in the context of how different parts of a corporate group function as a single economic entity. This theory is significant in corporate taxation because it emphasizes the interconnectedness and interdependency of various subsidiaries and divisions within a corporate group, rather than treating them strictly as separate, distinct entities for tax purposes.

This perspective is essential for determining how to allocate and apportion income among the various entities within a corporate group. By considering the unitary nature of the business operations, tax authorities can ensure a fair taxation structure that reflects the actual business activities and economic realities, rather than relying solely on legal separations that may not accurately represent the economic substance of the transactions.

The focus on practical business realities allows for a more holistic approach to taxation, recognizing that the operations of interconnected entities should be viewed together to arrive at an appropriate taxable income, rather than being fragmented into isolated legal entities which might not provide a true picture of the overall business operations.