The tax strategy in the article (aka the "Delaware Loophole") doesn't actually work to avoid state taxes. In fact, the "Delaware Loophole" as it was called has not worked in most states for decades. (As another commenter noted: the sole example given of this loophole was a miserable failure. The Toys R US group ultimately ended up owing more money to South Carolina after its maneuver than it did before. https://casetext.com/case/geoffrey-inc-v-south-carolina-tax-.... )
Two reasons the "Delaware Loophole" doesn't work:
1) In most states, related companies are treated as a unitary group for tax purposes. (See for example, California.) This means that generally, intercompany transactions between the related companies are treated as not existing for tax purposes.
2) In states which don't have unitary group methods, they simply tax the IP lease itself on nexus grounds, as South Carolina did in the Toys R Us/Geoffrey case (Geoffrey LLC was a subsidiary of TRU that existed solely to lease the TRU IP). TRU's IP-expense deduction in South Carolina ended up being fairly small, after taking into account their low profits, so SC simply granted the deduction to TRU...and decided to tax Geoffrey on the IP lease on nexus grounds. Unfortunately for the subsidiary, they had no expenses apportionable to South Carolina (which is usually the case for IP holding companies), and so all of the lease was taxable in South Carolina. The TRU group ended up paying significantly more in taxes to South Carolina after attempting the Delaware loophole than it did doing things the honest way. (And this result was predictable from the very beginning based on the nexus laws even as they were back then, which is why companies don't do this within the U.S.)
Edit:
On your proposal #1: this is how income taxation generally works in the U.S. States already get to tax a company's income earned in the state, so long as (a) the company has a physical presence in the state or (b) isn't physically located in the state but does enough volume or revenue in the state to justify imposing tax. (See "nexus").
At least in the U.S., the real game is about how to apportion expenses to a state. Every state uses a different formula, and some, like CA, let taxpayers choose the formula most beneficial to them. (Note: apportionment is nothing like transfer pricing.)
Outside of the U.S.: If a business earns 20% of its revenue from directly Country A, then taxability is not a transfer pricing issue, it's a tax treaty issue. But you presumably mean the following: a big (foreign) business sets up a smaller business locally, and "leases" that IP to the local subsidiary, reducing the profits (and thus tax) the smaller company pays to the local tax authority. In that case, there isn't really anything the local country can do, because the situation is no different than the case of Unrelated Local Company A licensing an IP from Big Company in Other Country B. Many countries wouldn't allow that sort of tax discrimination based on company ownership, and in the countries where it would be allowed, foreign investment would drop precipitously because it would be riskier and less profitable to do business in that country.
Two reasons the "Delaware Loophole" doesn't work:
1) In most states, related companies are treated as a unitary group for tax purposes. (See for example, California.) This means that generally, intercompany transactions between the related companies are treated as not existing for tax purposes.
2) In states which don't have unitary group methods, they simply tax the IP lease itself on nexus grounds, as South Carolina did in the Toys R Us/Geoffrey case (Geoffrey LLC was a subsidiary of TRU that existed solely to lease the TRU IP). TRU's IP-expense deduction in South Carolina ended up being fairly small, after taking into account their low profits, so SC simply granted the deduction to TRU...and decided to tax Geoffrey on the IP lease on nexus grounds. Unfortunately for the subsidiary, they had no expenses apportionable to South Carolina (which is usually the case for IP holding companies), and so all of the lease was taxable in South Carolina. The TRU group ended up paying significantly more in taxes to South Carolina after attempting the Delaware loophole than it did doing things the honest way. (And this result was predictable from the very beginning based on the nexus laws even as they were back then, which is why companies don't do this within the U.S.)
Edit:
On your proposal #1: this is how income taxation generally works in the U.S. States already get to tax a company's income earned in the state, so long as (a) the company has a physical presence in the state or (b) isn't physically located in the state but does enough volume or revenue in the state to justify imposing tax. (See "nexus").
At least in the U.S., the real game is about how to apportion expenses to a state. Every state uses a different formula, and some, like CA, let taxpayers choose the formula most beneficial to them. (Note: apportionment is nothing like transfer pricing.)
Outside of the U.S.: If a business earns 20% of its revenue from directly Country A, then taxability is not a transfer pricing issue, it's a tax treaty issue. But you presumably mean the following: a big (foreign) business sets up a smaller business locally, and "leases" that IP to the local subsidiary, reducing the profits (and thus tax) the smaller company pays to the local tax authority. In that case, there isn't really anything the local country can do, because the situation is no different than the case of Unrelated Local Company A licensing an IP from Big Company in Other Country B. Many countries wouldn't allow that sort of tax discrimination based on company ownership, and in the countries where it would be allowed, foreign investment would drop precipitously because it would be riskier and less profitable to do business in that country.