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From Separate Accounting to Formula Apportionment: Analysis in a Dynamic Framework

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  • Doina Maria Radulescu

Abstract

This paper analyzes the switch from Separate Accounting to Formula Apportionment in a dynamic framework. The model features both purely domestic corporations and a domestic multinational which invests at home and abroad as well as a purely foreign corporation and a foreign multinational which invests in the foreign economy as well as in the domestic country. Using such a framework we can show that since the new FA rules apply only to multinational firms, this will affect the domestic activity of purely domestic or foreign corporations since these stick to SA and thus the marginal product of labour and capital will be different for the two firm types. This in turn will affect the investment incentives and distort capital and labour allocation between the different types of enterprises operating in an economy.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-10/cesifo1_wp2122.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2122.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2122

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Related research

Keywords: capital income taxation; separate accounting; formula apportionment; dynamic optimization; multinational firms;

References

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  1. Haufler, A. & Schjelderup, G., 1999. "Corporate Tax Systems and Cross Country Profit Shifting," Papers, Norwegian School of Economics and Business Administration- 1/99, Norwegian School of Economics and Business Administration-.
  2. Riedel, Nadine & Runkel, Marco, 2007. "Company tax reform with a water's edge," Journal of Public Economics, Elsevier, Elsevier, vol. 91(7-8), pages 1533-1554, August.
  3. Goolsbee, Austan & Maydew, Edward L., 2000. "Coveting thy neighbor's manufacturing: the dilemma of state income apportionment," Journal of Public Economics, Elsevier, Elsevier, vol. 75(1), pages 125-143, January.
  4. S¯ren Bo Nielsen & Pascalis Raimondos-M¯ller & Guttorm Schjelderup, 2003. "Formula Apportionment and Transfer Pricing under Oligopolistic Competition," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 419-437, 04.
  5. Jack M. Mintz, 1999. "Globalization of the Corporate Income Tax: The Role of Allocation," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 56(3/4), pages 389-, July.
  6. Nielsen, Soren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2001. "Tax Spillovers under Separate accounting and Formula Apportionment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2831, C.E.P.R. Discussion Papers.
  7. Peter Sørensen, 2004. "Company Tax Reform in the European Union," International Tax and Public Finance, Springer, Springer, vol. 11(1), pages 91-115, January.
  8. Büttner, Thiess & Ruf, Martin, 2004. "Tax Incentives and the Location of FDI: Evidence from a Panel of German Multinationals," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 04-76, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Jack M. Mintz & Michael Smart, 2001. "Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada," International Tax Program Papers, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto 0402, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto, revised Apr 2003.
  10. Clemens Fuest & Thomas Hemmegarn & 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, Springer, vol. 14(5), pages 627-629, October.
  11. 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.
  12. Wolfgang Eggert & Guttorm Schjelderup, 2003. "Symmetric Tax Competition under Formula Apportionment," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 439-446, 04.
  13. 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.
  14. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
  15. 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.
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