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Multijurisdictional Firms and Governments’ Strategies under Alternative Tax Designs

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  • Marcel Gérard

Abstract

Conducted in a framework which embodies tax-shifting opportunities, risk of losses and possibility of interjurisdictional loss-offset, this paper investigates a reform of multijurisdictional enterprises taxation, a move from Separate Accounting to Formulary Apportionment. Findings are summarised in a series of propositions on the strategic behaviour of enterprises and authorities. Under Separate Accounting, tax-shifting opportunities reduce investment in the lower-taxing jurisdiction, tax sensitivity of investment and tax competition. Moving to Formulary Apportionment eliminates such opportunities, pushing the economy in the opposite direction. Permitting the firm to compensate losses among affiliates allows it to benefit from a tax-shifting and insurance device.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-08/cesifo1_wp1527.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1527.

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Date of creation: 2005
Date of revision:
Handle: RePEc:ces:ceswps:_1527

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Keywords: multijurisdictional enterprise; separate accounting; formulary apportionment; cross-border loss offset;

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References

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  1. Bartelsman, Eric J. & Beetsma, Roel M. W. J., 2003. "Why pay more? Corporate tax avoidance through transfer pricing in OECD countries," Journal of Public Economics, Elsevier, Elsevier, vol. 87(9-10), pages 2225-2252, September.
  2. 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.
  3. Rüdiger Pethig & Andreas Wagener, 2003. "Profit Tax Competition and Formula Apportionment," CESifo Working Paper Series 1011, CESifo Group Munich.
  4. Michael Devereux, 2004. "Debating Proposed Reforms of the Taxation of Corporate Income in the European Union," International Tax and Public Finance, Springer, Springer, vol. 11(1), pages 71-89, January.
  5. Rinaldo BRAU & Massimo FLORIO, 2004. "Privatisations as price reforms: Evaluating consumers' welfare changes in the U.K," Annales d'Economie et de Statistique, ENSAE, issue 75-76, pages 109-133.
  6. Søren Bo Nielsen & Pascalis Raimondos-Møller & Guttorm Schjelderup, . "Formula Apportionment and Transfer Pricing under Oligopolistic Competition," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 01-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  7. Marcel GERARD & Marie-France GILLARD, 2004. "Taxation, Financial Intermodality and the Least Taxed Path for Circulating Income within a Multinational Enterprise," Annales d'Economie et de Statistique, ENSAE, issue 75-76, pages 89-107.
  8. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, Elsevier, vol. 60(3), pages 401-422, June.
  9. European Commission, 2001. "Company Taxation in the Internal Market," Taxation Studies, Directorate General Taxation and Customs Union, European Commission 0005, Directorate General Taxation and Customs Union, European Commission.
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  12. 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.
  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. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  15. Jack Mintz, 2004. "Corporate Tax Harmonization in Europe: It's All About Compliance," International Tax and Public Finance, Springer, Springer, vol. 11(2), pages 221-234, 03.
  16. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, Econometric Society, vol. 54(6), pages 1357-73, November.
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  18. Cnossen,Sijbren, 2002. "Tax policy in the european union, A review of issues and options," Research Memorandum 023, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  19. Dietmar Wellisch, 2004. "Taxation under Formula Apportionment - Tax Competition, Tax Incidence, and the Choice of Apportionment Factors," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 60(1), pages 24-, April.
  20. Sijbren Cnossen, 2002. "Tax Policy in the European Union: A Review of Issues and Options," CESifo Working Paper Series 758, CESifo Group Munich.
  21. 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.
  22. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2010. "Company taxation and tax spillovers: Separate accounting versus formula apportionment," European Economic Review, Elsevier, Elsevier, vol. 54(1), pages 121-132, January.
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Citations

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Cited by:
  1. Gaëtan Nicodème, 2006. "Corporate tax competition and coordination in the European Union: What do we know? Where do we stand?," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 250, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. 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.
  3. Marcel Gerard, 2006. "Reforming the taxation of Multijurisdictional Enterprises in Europe, "Coopetition" in a Bottom-up Federation," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2006-10, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  4. Marco Runkel & Guttorm Schjelderup, 2011. "The Choice Of Apportionment Factors Under Formula Apportionment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 913-934, 08.
  5. Eggert, Wolfgang & Haufler, Andreas, 2006. "Company-tax coordination cum tax-rate competition in the European union," Munich Reprints in Economics, University of Munich, Department of Economics 20563, University of Munich, Department of Economics.
  6. Bucovetsky, Sam & Haufler, Andreas, 2005. "Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed?," Discussion Papers in Economics, University of Munich, Department of Economics 729, University of Munich, Department of Economics.
  7. Martini, Jan Thomas & Niemann, Rainer & Simons, Dirk, 2007. "Transfer pricing or formula apportionment? Tax-induced distortions of multinationals' investment and production decisions," arqus Discussion Papers in Quantitative Tax Research 27, arqus - Arbeitskreis Quantitative Steuerlehre.
  8. Eichner, Thomas & Runkel, Marco, 2009. "Corporate income taxation of multinationals and unemployment," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 39(5), pages 610-620, September.
  9. Marcel G�rard, 2006. "Reforming the taxation of multijurisdictional enterprises in Europe: a tentative appraisal," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 265, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  10. 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, Directorate General Taxation and Customs Union, European Commission 9, Directorate General Taxation and Customs Union, European Commission, revised Oct 2006.

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