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Formulary Apportionment and Group Taxation in the European Union: Insights from the United States and Canada

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Author Info

  • Joann Martens Weiner

    ()
    (George Washington University)

Abstract

In 2001, the European Commission endorsed a future company tax strategy that would allow EU companies the option of calculating their EU profits on a common consolidated tax base and allow Member States to tax their share of that base at national rates. Implementing this strategy requires developing a formula to distribute the common tax base across the Member States. Although EU Member States currently do not use formulary methods to distribute a common consolidate tax base across national boundaries, Canada and the United States have extensive experience using formulary methods to distribute income across sub-national boundaries. Thus, the European Union can turn to North America to gain valuable insights into the design of a formulary apportionment system with common base taxation. This paper evaluates key issues that may arise when implementing common consolidated base taxation with formulary apportionment in the EU. These issues include the formula design, the definition of the company group and the definition and scope of the tax base. The paper also discusses potential economic consequences that may arise and suggests a potential apportionment system for the European Union.

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File URL: http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_papers/2004_2073_EN_web_final_version.pdf
File Function: final version, 2005
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Bibliographic Info

Paper provided by Directorate General Taxation and Customs Union, European Commission in its series Taxation Papers with number 8.

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Length: 68 pages
Date of creation: Mar 2005
Date of revision: Mar 2005
Handle: RePEc:tax:taxpap:0008

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Web page: http://ec.europa.eu/taxation_customs/index_en.htm
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Related research

Keywords: European Union; Corporate Taxation; Formulary apportionment; common consolidated base taxation; EU company tax reform;

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References

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  1. Fox, William F. & Luna, LeAnn, 2002. "State Corporate Tax Revenue Trends: Causes and Possible Solutions," National Tax Journal, National Tax Association, vol. 55(3), pages 491-508, September.
  2. Peter Sørensen, 2004. "Company Tax Reform in the European Union," International Tax and Public Finance, Springer, vol. 11(1), pages 91-115, January.
  3. Mintz, Jack & Weiner, Joann Martens, 2003. "Exploring Formula Allocation for the European Union," International Tax and Public Finance, Springer, vol. 10(6), pages 695-711, November.
  4. 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.
  5. Rüdiger Pethig & Andreas Wagener, 2003. "Profit Tax Competition and Formula Apportionment," CESifo Working Paper Series 1011, CESifo Group Munich.
  6. Charles McLure Jr. & Walter Hellerstein, 2002. "Does sales-only apportionment of corporate income violate international trade rules?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 3(4), pages 23-30, 03.
  7. McLure, Charles E. Jr., 2000. "Implementing State Corporate Income Taxes in the Digital Age," National Tax Journal, National Tax Association, vol. 53(n.4), pages 1287-1305, December.
  8. 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.
  9. Gupta, Sanjay & Mills, Lillian F., 2003. "Does Disconformity in State Corporate Income Tax Systems affect Compliance Cost Burdens?," National Tax Journal, National Tax Association, vol. 56(2), pages 355-71, June.
  10. 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.
  11. 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.
  12. Daly, Michael & Weiner, Joann M., 1993. "Corporate Tax Harmonization and Competition in Federal Countries: Some Lessons for the European Community?," National Tax Journal, National Tax Association, vol. 46(4), pages 441-61, December.
  13. Klassen, Kenneth J. & Shackelford, Douglas A., 1998. "State and provincial corporate tax planning: income shifting and sales apportionment factor management," Journal of Accounting and Economics, Elsevier, vol. 25(3), pages 385-406, June.
  14. 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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Citations

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Cited by:
  1. Marco Runkel & Guttorm Schjelderup, 2007. "The Choice of Apportionment Factors under Formula Apportionment," CESifo Working Paper Series 2072, CESifo Group Munich.
  2. Marcel Gerard, 2006. "Reforming the taxation of Multijurisdictional Enterprises in Europe, "Coopetition" in a Bottom-up Federation," Working Papers 2006-10, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  3. 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, vol. 14(5), pages 627-629, October.
  4. 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.
  5. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.
  6. Marcel G�rard, 2006. "Reforming the taxation of multijurisdictional enterprises in Europe: a tentative appraisal," European Economy - Economic Papers 265, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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