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Tax Spillovers under Separate accounting and Formula Apportionment

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  • Nielsen, Soren Bo
  • Schjelderup, Guttorm
  • Raimondos, Pascalis

Abstract

It is observed in the real world that taxes matter for location decisions and that multinationals shift profits by transfer pricing. The US and Canada use Formula Apportionment (FA) to tax corporate income, and the EU is debating a switch from Separate Accounting (SA) to FA. This paper develops a theoretical model that compares basic properties of FA to SA. The focal point of the analysis is on how changes in tax rates affect capital formation, input choice, and transfer pricing as well as spillovers on tax revenue in other countries. The analysis shows that a move from SA to FA will not eliminate such spillovers and will, in cases identified in the paper, actually aggravate them.

Suggested Citation

  • Nielsen, Soren Bo & Schjelderup, Guttorm & Raimondos, Pascalis, 2001. "Tax Spillovers under Separate accounting and Formula Apportionment," CEPR Discussion Papers 2831, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2831
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    Cited by:

    1. Wolfgang Eggert & Andreas Haufler, 2006. "Company-Tax Coordination cum Tax-Rate Competition in the European Union," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(4), pages 579-601, December.
    2. 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, April.
    3. Rüdiger Pethig & Andreas Wagener, 2007. "Profit tax competition and formula apportionment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(6), pages 631-655, December.
    4. Egger, Peter & Eggert, Wolfgang & Keuschnigg, Christian & Winner, Hannes, 2010. "Corporate taxation, debt financing and foreign-plant ownership," European Economic Review, Elsevier, vol. 54(1), pages 96-107, January.
    5. Dietrich, Maik, 2009. "Entscheidungswirkungen einer europaweit harmonisierten Konzernbesteuerung [Impacts of European Group Taxation]," MPRA Paper 59870, University Library of Munich, Germany.
    6. 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.
    7. 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.
    8. Doina Radulescu & Doina Maria Radulescu, 2007. "From Separate Accounting to Formula Apportionment: Analysis in a Dynamic Framework," CESifo Working Paper Series 2122, CESifo.
    9. Buettner, Thiess & Riedel, Nadine & Runkel, Marco, 2011. "Strategic Consolidation Under Formula Apportionment," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 225-254, June.
    10. Joann Martens Weiner, 2005. "Formulary Apportionment and Group Taxation in the European Union: Insights from the United States and Canada," Taxation Papers 8, Directorate General Taxation and Customs Union, European Commission, revised Mar 2005.
    11. Robert F. Conrad, 2006. "Interjurisdictional Taxation and Attribution Rules," Public Finance Review, , vol. 34(5), pages 505-526, September.
    12. Haufler, Andreas, 2006. "Die Besteuerung multinationaler Unternehmen," Discussion Papers in Economics 1153, University of Munich, Department of Economics.
    13. Peter Birch Sørensen, 2003. "Company Tax Reform in the European Union," EPRU Working Paper Series 03-08, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    14. Doina Radulescu & Doina Maria Radulescu, 2002. "Taxing corporations in the European Single Market - the reform proposals of the European Commission," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 55(02), pages 12-18, January.
    15. Clemens Fuest, 2008. "The European Commission's proposal for a common consolidated corporate tax base," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(4), pages 720-739, winter.
    16. repec:prg:jnlpep:v:preprint:id:660:p:1-22 is not listed on IDEAS
    17. 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.
    18. Kateřina Krchnivá & Danuše Nerudová, 2018. "The CCCTB Allocation Formula Game: The Performance of Economics Sectors," Prague Economic Papers, Prague University of Economics and Business, vol. 2018(4), pages 427-448.
    19. 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 9, Directorate General Taxation and Customs Union, European Commission, revised Oct 2006.
    20. Charles E. Hyde, 2001. "Multinationals And The Relationship Between Strategic And Tax Transfer Prices," Department of Economics - Working Papers Series 822, The University of Melbourne.
    21. Schjelderup, Guttorm & Ulltveit-Moe, Karen Helene & Kind, Hans Jarle, 2001. "Corporate Taxation, Multinational Enterprise and Economic Integration," CEPR Discussion Papers 2753, C.E.P.R. Discussion Papers.
    22. Peter Sørensen, 2004. "Company Tax Reform in the European Union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(1), pages 91-115, January.

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    More about this item

    Keywords

    Transfer prices; Separate accounting; Formula apportionment; Tax externalities;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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