Advanced Search
MyIDEAS: Login to save this paper or follow this series

Strategic Consolidation under Formula Apportionment

Contents:

Author Info

  • Thiess Buettner

    ()
    (ifo Institute and University of Munich)

  • Nadine Riedel

    ()
    (Oxford University Centre for Business Taxation)

  • Marco Runkel

    ()
    (University of Magdeburg)

Abstract

This paper argues that profit-shifting activities of multi-jurisdictional enterprises (MJE) are maintained under a tax system of consolidation and formula apportionment (FA). A theoretical model discusses how an MJE can exploit its impact on the definition of the consolidated group strategically. The analysis shows that the MJE will run individual affiliates as separate un-consolidated firms for tax purposes if intra-group tax-rate differences, and thereby potential gains from profit-shifting, are large. We test this prediction using confidential firm-level tax-return data for the local business tax in Germany. The identification strategy exploits a quasi experiment derived from a major company tax reform in 2001 that reduced the costs associated with separating out individual affiliates. Our results show that, evaluated at the sample mean, an increase in the tax-rate variance among the MJE’s affiliates by one standard deviation reduces the number of consolidated affiliates by 20%.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/Working_Papers/Series_08/WP0827.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0827.

as in new window
Length:
Date of creation: 2008
Date of revision:
Handle: RePEc:btx:wpaper:0827

Contact details of provider:
Postal: Park End Street, Oxford OX1 1HP UK
Phone: +44 (0)1865 288800
Fax: +44 (0)1865 288805
Web page: http://www.sbs.ox.ac.uk/ideas-impact/tax/
More information through EDIRC

Related research

Keywords: corporate taxation; formula apportionment; micro data;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Wetzler, James W., 1995. "Should the U.S. Adopt Formula Apportionment?," National Tax Journal, National Tax Association, vol. 48(3), pages 357-62, September.
  2. Clemens Fuest, 2008. "The European Commission´s Proposal for a Common Consolidated Corporate Tax Base," Working Papers 0823, Oxford University Centre for Business Taxation.
  3. Rüdiger Pethig & Andreas Wagener, 2003. "Profit Tax Competition and Formula Apportionment," CESifo Working Paper Series 1011, CESifo Group Munich.
  4. Huizinga, Harry & Voget, Johannes, 2006. "International Taxation and the Direction and Volume of Cross-Border M&As," CEPR Discussion Papers 5974, C.E.P.R. Discussion Papers.
  5. Bucovetsky, Sam & Haufler, Andreas, 2005. "Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed?," Discussion Papers in Economics 729, University of Munich, Department of Economics.
  6. 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.
  7. 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.
  8. 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.
  9. Kind, Hans Jarle & Midelfart, Karen Helene & Schjelderup, Guttorm, 2005. "Corporate tax systems, multinational enterprises, and economic integration," Journal of International Economics, Elsevier, vol. 65(2), pages 507-521, March.
  10. Buettner, Thiess, 2003. "Tax base effects and fiscal externalities of local capital taxation: evidence from a panel of German jurisdictions," Journal of Urban Economics, Elsevier, vol. 54(1), pages 110-128, July.
  11. Thomas Eichner & Marco Runkel, 2008. "Why the European Union Should Adopt Formula Apportionment with a Sales Factor," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 567-589, 09.
  12. Jack Mintz & Michael Smart, 2001. "Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada," CESifo Working Paper Series 554, CESifo Group Munich.
  13. Desai, Mihir A. & Foley, C. Fritz & Hines, James Jr., 2006. "The demand for tax haven operations," Journal of Public Economics, Elsevier, vol. 90(3), pages 513-531, February.
  14. Nielsen, Soren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2001. "Tax Spillovers under Separate accounting and Formula Apportionment," CEPR Discussion Papers 2831, C.E.P.R. Discussion Papers.
  15. Mihir A. Desai & C. Fritz Foley & James R. Hines, Jr., 2002. "The Costs of Shared Ownership: Evidence from International Joint Ventures," NBER Chapters, in: Corporate Alliances National Bureau of Economic Research, Inc.
  16. 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.
  17. 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.
  18. 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.
  19. Michael P Devereux & Simon Loretz, 2007. "The Effects of EU Formula Apportionment on Corporate Tax Revenues," Working Papers 0706, Oxford University Centre for Business Taxation.
  20. Pinto, Santiago M., 2007. "Corporate profit tax, capital mobility, and formula apportionment," Journal of Urban Economics, Elsevier, vol. 62(1), pages 76-102, July.
  21. Dietmar Wellisch, 2004. "Taxation under Formula Apportionment - Tax Competition, Tax Incidence, and the Choice of Apportionment Factors," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(1), pages 24-, April.
  22. Michael P Devereux, 2007. "The Impact of Taxation on the Location of Capital, Firms and Profit: a Survey of Empirical Evidence," Working Papers 0702, Oxford University Centre for Business Taxation.
  23. Thomas A. Gresik, 2001. "The Taxing Task of Taxing Transnationals," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 800-838, September.
  24. Alfons J. Weichenrieder & Jack Mintz, 2008. "What determines the use of holding companies and ownership chains?," Working Papers 0803, Oxford University Centre for Business Taxation.
  25. Jack M. Mintz, 1999. "Globalization of the Corporate Income Tax: The Role of Allocation," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(3/4), pages 389-, July.
  26. Peter Sørensen, 2004. "Company Tax Reform in the European Union," International Tax and Public Finance, Springer, vol. 11(1), pages 91-115, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Martini, Jan-Thomas & Niemann, Rainer & Simons, Dirk, 2014. "Management incentives under formula apportionment: Tax-induced distortions of effort and compensation in a principal-agent setting," arqus Discussion Papers in Quantitative Tax Research 168, arqus - Arbeitskreis Quantitative Steuerlehre.
  2. Nadine Riedel, 2011. "Taxing multi-nationals under union wage bargaining," International Tax and Public Finance, Springer, vol. 18(4), pages 399-421, August.
  3. Claudia Keser & Gerrit Kimpel & Andreas Oestreicher, 2014. "The CCCTB option – an experimental study," CIRANO Working Papers 2014s-24, CIRANO.
  4. Keser, Claudia & Kimpel, Gerrit & Oestreicher, Andreas, 2014. "The CCCTB option: An experimental study," Center for European, Governance and Economic Development Research Discussion Papers 199, University of Goettingen, Department of Economics.
  5. 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.
  6. Jan Thomas Martini & Rainer Niemann & Dirk Simons, 2014. "Management Incentives under Formula Apportionment - Tax-Induced Distortions of Effort and Compensation in a Principal-Agent Setting -," CESifo Working Paper Series 4908, CESifo Group Munich.
  7. repec:csg:ajrcwp:1303 is not listed on IDEAS
  8. Kazuki Onji, 2013. "Who participates in corporate income tax consolidation? Evidence from Japan," AJRC Working Papers 03, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:btx:wpaper:0827. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Li Liu).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.