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Reforming the Taxation of Multijurisdictional Enterprises in Europe, a Tentative Appraisal

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  • Marcel Gérard

Abstract

In 2001, the European Commission proposed replacing the current system of taxation of multinational companies by the taxation of a consolidated base, computed at the level of all the European entities of a multijurisdictional enterprise, and then distributed for taxation purposes between the various jurisdictions in which these entities operate, according to pre-established criteria. In this paper, we propose a tentative appraisal of that reform based on a case study and an analytical exercise. We especially focus on two related issues, the choice of the formula and the composition of the consolidating area – either the entire EU or some Member States within an Enhanced Cooperation Agreement –, and on their impact on the size and interjurisdictional distribution of tax revenue and social welfare, and on the intensity of tax competition. Our tentative policy conclusion is that this paper supports the reform provided that (1) the formula puts emphasis on criteria that the firm may not too easily manipulate, (2) the activities of the multijurisdictional enterprise are enough mobile, (3) the consolidation is made compulsory within the consolidating area, and (4) the consolidating area protects its capacity to actually levy tax by adopting a crediting system vis-à-vis the rest of the world.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1795.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1795

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Keywords: multinational enterprises; multinational companies; multijurisdictional enterprises; European taxation; tax consolidation; tax competition;

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Cited by:
  1. Leon Bettendorf & Albert van der Horst & Ruud A. de Mooij & Hendrik Vrijburg, 2010. "Corporate tax consolidation and enhanced coorporation in the European Union," Working Papers, Oxford University Centre for Business Taxation 1001, Oxford University Centre for Business Taxation.
  2. 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.
  3. Albert van der Horst & Leon Bettendorf & Hugo Rojas-Romagosa, 2007. "Will corporate tax consolidation improve efficiency in the EU?," CPB Document, CPB Netherlands Bureau for Economic Policy Analysis 141, CPB Netherlands Bureau for Economic Policy Analysis.
  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. 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.
  6. Christoph Spengel & Carsten Wendt, 2007. "A Common Consolidated Corporate Tax Base for Multinational Companies in the European Union, Some Issues und Options," Working Papers, Oxford University Centre for Business Taxation 0717, Oxford University Centre for Business Taxation.

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