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The Revenue Consequences of Using Formula Apportionment to Calculate U.S. and Foreign-Source Income: A Firm-Level Analysis

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Author Info
Douglas Shackelford
Joel Slemrod

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Abstract

This paper examines the 1989–1993 publicly available financial reports of 46 U.S.-based multinationals to estimate the revenue implications of implementing a U.S. federal formula apportionment system. Ignoring behavioral responses, we estimate shifting to an equal-weighted, three-factor formula would have increased their U.S. tax liabilities by 38 percent, with an 81 percent increase for oil and gas firms. We find the firms report a lower percentage of their worldwide profits as American profits than their American share of assets, sales, or payroll. The results may be attributed to more profitable foreign operations, tax-motivated income shifting, or measurement error. Copyright Kluwer Academic Publishers 1998

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File URL: http://hdl.handle.net/10.1023/A:1008664408465
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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 5 (1998)
Issue (Month): 1 (February)
Pages: 41-59
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Handle: RePEc:kap:itaxpf:v:5:y:1998:i:1:p:41-59

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Related research
Keywords: formula apportionment; multinational taxation; revenue estimates; financial statements; accounting for income taxes;

References listed on IDEAS
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  1. Daniel Frisch, 1983. "Issues in the Taxation of Foreign Source Income," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 289-332 National Bureau of Economic Research, Inc. [Downloadable!]
  2. James R. Hines, Jr. & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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(explanations, 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.)

  1. James R. Hines, Jr., 2009. "Income Misattribution under Formula Apportionment," NBER Working Papers 15185, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Clemens Fuest & Thomas Hemmelgarn & Fred Ramb, 2007. "How would the introduction of an EU-wide formula apportionment affect the distribution and size of the corporate tax base? An analysis based on German multinationals," International Tax and Public Finance, Springer, vol. 14(5), pages 605-626, October. [Downloadable!] (restricted)
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  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 CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Fuest, Clemens & Hemmelgarn, Thomas & Ramb, Fred, 2006. "How would formula apportionment in the EU affect the distribution and the size of the corporate tax base? An analysis based on German multinationals," Discussion Paper Series 1: Economic Studies 2006,20, Deutsche Bundesbank, Research Centre. [Downloadable!]
  5. 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. [Downloadable!]
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  6. Søren Bo Nielsen & Pascalis Raimondos-Møller & Guttorm Schjelderup, . "Formula Apportionment and Transfer Pricing under Oligopolistic Competition," EPRU Working Paper Series 01-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
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  7. Ana Agundez-Garcia, 2006. "The Delineation and Apportionment of an EU Consolidated Tax Base for Multi-jurisdictional Corporate Income Taxation: a Review of Issues and Options," Taxation Papers 9, Directorate General Taxation and Customs Union, European Commission, revised Oct 2006. [Downloadable!]
  8. David Wildasin, 2009. "State Corporation Income Taxation; An Economic Perspective on Nexus," Working Papers 2009-08, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
  9. Jack Mintz & Joann Weiner, 2003. "Exploring Formula Allocation for the European Union," Asia-Pacific Financial Markets, Springer, vol. 10(6), pages 695-711, November. [Downloadable!] (restricted)
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  10. Hans Jarle Kind & Helene Midelfart & Guttorm Schjelderup, 2004. "Corporate Tax Systems, Multinational Enterprises, and Economic Integration," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  11. Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 2001. "Corporate Taxation, Multinational Enterprise and Economic Integration," CEPR Discussion Papers 2753, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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