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The Effects of EU Formula Apportionment on Corporate Tax Revenues

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  • Michael P Devereux

    ()

  • Simon Loretz

    ()

Abstract

The European Commission proposes to replace the current system of taxing corporate income of separate accounting by a two-step 'consolidate and apportionment' procedure. This paper uses a large set of unconsolidated firm-level data to assess the likely impact on corporate tax revenues in each Member State. Taking pre-tax profit as given, overall tax revenues would be likely to drop by 2.5 % if companies can choose whether to participate. By contrast, if they were forced to participate, total tax revenues would be likely to increase by more than 2 %, leaving some European countries, and most notably Spain, Sweden and the United Kingdom better off. We investigate how sensitive these results are to the apportionment factors used.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0706.

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Date of creation: 2007
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Handle: RePEc:btx:wpaper:0706

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Keywords: Corporate Taxation; International Loss Consolidation; Apportionment Rules;

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References

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  1. Albert van der Horst & Leon Bettendorf & Hugo Rojas-Romagosa, 2007. "Will Corporate Tax Consolidation improve Efficiency in the EU ?," Tinbergen Institute Discussion Papers 07-076/2, Tinbergen Institute.
  2. Goolsbee, Austan & Maydew, Edward L., 2000. "Coveting thy neighbor's manufacturing: the dilemma of state income apportionment," Journal of Public Economics, Elsevier, vol. 75(1), pages 125-143, January.
  3. 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.
  4. 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.
  5. Rüdiger Pethig & Andreas Wagener, 2003. "Profit Tax Competition and Formula Apportionment," Volkswirtschaftliche Diskussionsbeiträge 106-03, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  6. Nicodeme, Gaetan, 2006. "Corporate Tax Competition and Coordination in the European Union: What do we know? Where do we stand?," MPRA Paper 107, University Library of Munich, Germany.
  7. Douglas Shackelford & Joel Slemrod, 1998. "The Revenue Consequences of Using Formula Apportionment to Calculate U.S. and Foreign-Source Income: A Firm-Level Analysis," International Tax and Public Finance, Springer, vol. 5(1), pages 41-59, February.
  8. 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.
  9. Musgrave, Peggy B, 1972. "International Tax Base Division and the Multinational Corporation," Public Finance = Finances publiques, , vol. 27(4), pages 394-413.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. Anand, Bharat N. & Sansing, Richard, 2000. "The Weighting Game: Formula Apportionment as an Instrument of Public Policy," National Tax Journal, National Tax Association, vol. 53(n. 2), pages 183-200, June.
  15. Riedel, Nadine & Runkel, Marco, 2007. "Company tax reform with a water's edge," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1533-1554, August.
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Citations

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Cited by:
  1. Albert van der Horst & Leon Bettendorf & Hugo Rojas-Romagosa, 2007. "Will Corporate Tax Consolidation improve Efficiency in the EU ?," Tinbergen Institute Discussion Papers 07-076/2, Tinbergen Institute.
  2. Ruud de Mooij & Michael P. Devereux, 2009. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Studies 0028, Directorate General Taxation and Customs Union, European Commission.
  3. Buettner, Thiess & Riedel, Nadine & Runkel, Marco, 2011. "Strategic Consolidation Under Formula Apportionment," National Tax Journal, National Tax Association, vol. 64(2), pages 225-54, June.
  4. Clemens Fuest, 2008. "The European Commission's proposal for a common consolidated corporate tax base," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 720-739, winter.
  5. Matthias Wrede, 2009. "Asymmetric Tax Competition with Formula Apportionment," MAGKS Papers on Economics 200943, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  6. Becker, Johannes & Runkel, Marco, 2013. "Corporate tax regime and international allocation of ownership," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 8-15.
  7. Ruud de Mooij & Michael P. Devereux, 2009. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Papers 17, Directorate General Taxation and Customs Union, European Commission.
  8. James R. Hines, Jr., 2009. "Income Misattribution under Formula Apportionment," NBER Working Papers 15185, National Bureau of Economic Research, Inc.
  9. Michael P Devereux & Simon Loretz, 2008. "Increased efficiency through consolidation and formula apportionment in the European Union?," Working Papers 0812, Oxford University Centre for Business Taxation.
  10. Kazuki Onji, 2013. "Who participates in corporate income tax consolidation? Evidence from Japan," AJRC Working Papers 1303, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  11. Ortmann, Regina & Sureth, Caren, 2014. "Can the CCCTB alleviate tax discrimination against loss-making European multinational groups?," arqus Discussion Papers in Quantitative Tax Research 165, arqus - Arbeitskreis Quantitative Steuerlehre.
  12. Daniela PÎRVU, 2013. "Twhy Ccctb Disadvantages Less Developed Countries Of The European Union," SEA - Practical Application of Science, Fundația Română pentru Inteligența Afacerii, Editorial Department, issue 1, pages 317-332, June.
  13. Daniela Pirvu & Logica Banica & Alina Hagiu, 2011. "Implications of the introduction of the Common Consolidated Corporate Tax Base for tax revenues in Romania," Financial Theory and Practice, Institute of Public Finance, vol. 35(2), pages 197-215.
  14. Jack M Mintz, 2007. "Europe Slowly Lurches to a Common Consolidated Corporate Tax Base: Issues at Stake," Working Papers 0714, Oxford University Centre for Business Taxation.
  15. repec:cmj:journl:y:2013:i:28:pirvud is not listed on IDEAS
  16. Charles McLure Jr., 2008. "Harmonizing Corporate Income Taxes in the US and the EU: Legislative, Judicial, Soft Law and Cooperative Approaches," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 9(2), pages 46-52, 07.

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