Abstract:
The purpose of this study is to examine legal framework of taxation of MNC in Ethiopia, in order to
identify the challenges and provide the possible solutions by comparing it with the experience of some
selected developed nations MNC taxation legal framework. To this end, the study used doctrinal
research approach and relied on secondary data like official documents and reports, literatures and
internet sources. Comparative analysis also used in order to draw lesson from the tax jurisdictions of
developed nations. Eventually, the data are analyzed by the researcher based on logic and reasoning;
and eventually revealed the following findings. First, unlike the developed nation’s trend the Ethiopian
income tax Proclamation has high tax rate without alternative minimum tax rate. The tax laws of
developed has incorporated interest stripping rule, which is the most effective approach that directly
restrict interest deduction. In Ethiopia, there is also no detailed rule provide (regulate) specific
depreciation rates applicable for real estate, goodwill and intellectual property, which is a dominant
trend in MNC tax rules of the developed nations. The Ethiopian ITR has no specific restrictive rules that
define or limit the scope of head office expenses. Finally, unlike the developed nations the Ethiopian TP
Directive does not contain administrative and/or penal clauses. In sum the study revealed the presence of
limitation on the part of the legislator to enact an effective, specific and detailed rules concerning the
issue of deprecation, alternative/ minimum tax rate formulation, provision on general interest deduction
limitation, head office expense and loss compensation. Finally, the study suggests the enactment of
specific and detailed rule on the abovementioned issues.
