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Company Tax Reform in the European Union

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  • Peter Sørensen

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    Abstract

    The European Commission recently proposed to move towards a consolidated tax base for European multinational companies, to be allocated across EU member states through a system of formula apportionment. This paper argues that while the Commission's blueprints for company tax reform may reduce existing problems of transfer pricing, they will also create new distortions as long as existing tax rate differentials are maintained. The paper also investigates the changes in international tax spillovers which will occur as a result of a switch from the current system of separate accounting to formula apportionment. The final part of the paper discusses whether more conventional corporate tax harmonization should still be a long term policy goal for the EU and presents quantitative estimates of the efficiency gains from harmonization. Copyright Kluwer Academic Publishers 2004

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    File URL: http://hdl.handle.net/10.1023/B:ITAX.0000004778.63592.96
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    Bibliographic Info

    Article provided by Springer in its journal International Tax and Public Finance.

    Volume (Year): 11 (2004)
    Issue (Month): 1 (January)
    Pages: 91-115

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    Handle: RePEc:kap:itaxpf:v:11:y:2004:i:1:p:91-115

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    Web page: http://www.springerlink.com/link.asp?id=102915

    Related research

    Keywords: corporate tax reform in the EU; formula apportionment; tax harmonization;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Richard Baldwin; Paul Krugman, 2001. "Agglomeration, Integration and Tax Harmonization," IHEID Working Papers 01-2001, Economics Section, The Graduate Institute of International Studies.
    2. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
    3. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November.
    4. European Commission, 2001. "Company Taxation in the Internal Market," Taxation Studies 0005, Directorate General Taxation and Customs Union, European Commission.
    5. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjederup, Guttorm, 2000. "Formula Apportionment And Transfer Pricing Under Oligopolistic Competition," Working Papers 18-2000, Copenhagen Business School, Department of Economics.
    6. Zodrow, George R, 2003. "Tax Competition and Tax Coordination in the European Union," International Tax and Public Finance, Springer, vol. 10(6), pages 651-71, November.
    7. Joann Weiner, 2002. "Formula Apportionment in the European Union: A Dream Come True or the EU’s Worst Nightmare?," CESifo Working Paper Series 667, CESifo Group Munich.
    8. Peter Birch Sørensen, 2001. "International Tax Coordination: Regionalism Versus Globalism," CESifo Working Paper Series 483, CESifo Group Munich.
    9. Søren Bo Nielsen & Pascalis Raimondos-Møller & Guttorm Schjelderup, . "Tax Spillovers under Separate Accounting and Formula Apportionment," EPRU Working Paper Series 01-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    10. Guttorm Schjelderup & Lars Sorgard, 1997. "Transfer Pricing as a Strategic Device for Decentralized Multinationals," International Tax and Public Finance, Springer, vol. 4(3), pages 277-290, July.
    11. Wolfgang Eggert & Guttorm Schjelderup, 2003. "Symmetric Tax Competition under Formula Apportionment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 439-446, 04.
    12. Sørensen, Peter Birch, 2003. "International Tax Competition: A New Framework for Analysis," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 33(2), pages 179-192, September.
    13. Marcel Gérard & Joann Weiner, 2003. "Cross-Border Loss Offset and Formulary Apportionment: How do they affect multijurisdictional firm investment spending and interjurisdictional tax competition ?," CESifo Working Paper Series 1004, CESifo Group Munich.
    14. Mintz, Jack & Weiner, Joann Martens, 2003. "Exploring Formula Allocation for the European Union," International Tax and Public Finance, Springer, vol. 10(6), pages 695-711, November.
    15. Michael Devereux, 2004. "Debating Proposed Reforms of the Taxation of Corporate Income in the European Union," International Tax and Public Finance, Springer, vol. 11(1), pages 71-89, January.
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    Citations

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    Cited by:
    1. Brülhart, Marius & Jametti, Mario & Schmidheiny, Kurt, 2007. "Do Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials?," CEPR Discussion Papers 6606, C.E.P.R. Discussion Papers.
    2. Joann Martens Weiner, 2005. "Formulary Apportionment and Group Taxation in the European Union: Insights from the United States and Canada," Taxation Papers 8, Directorate General Taxation and Customs Union, European Commission, revised Mar 2005.
    3. Jan Thomas Martini & Rainer Niemann & Dirk Simons, 2007. "Transfer Pricing or Formula Apportionment? Tax-Induced Distortions of Multinationals’ Investment and Production Decisions," CESifo Working Paper Series 2020, CESifo Group Munich.
    4. Sommer, Christoph, 2008. "Theorie der Besteuerung nach Formula Apportionment − Untersuchung auftretender ökonomischer Effekte anhand eines Allgemeinen Gleichgewichtsmodells," arqus Discussion Papers in Quantitative Tax Research 46, arqus - Arbeitskreis Quantitative Steuerlehre.

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