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How would formula apportionment in the EU affect the distribution and the size of the corporate tax base? An analysis based on German multinationals

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Author Info
Fuest, Clemens
Hemmelgarn, Thomas
Ramb, Fred

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Abstract

This paper analyses the effects of introducing a common EU tax base with formula apportionment on the size of the EU wide tax base and on the distribution of the tax base between the EU member countries. We use a combined dataset of Deutsche Bundesbank’s Foreign Direct Investment data (MiDi) and corporate balance sheet data (Ustan and Hoppenstedt) for the tax base estimations. The data is used to construct i) a separate accounting and ii) a formula apportionment tax base for the firms in the sample. Our results suggest that due to border crossing loss-offset, the EU wide corporate tax base represented by our data sample shrinks significantly. Smaller countries which are usually considered to attract book profits under the current system, i.e. Ireland and the Netherlands, tend to lose a larger part of their tax base than larger countries like Germany, Italy, France or Great Britain. However, these results should be evaluated in the light of the limitations of the data used in this study since our analysis is based on German FDI data only. Furthermore, the calculations do not take into account behavioural responses of companies caused by such a system change.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2006,20.

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Date of creation: 2006
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Handle: RePEc:zbw:bubdp1:4471

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Related research
Keywords: EU Tax Base Formula Apportionment Multinational Companies

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  2. Jack Mintz & Joann Weiner, 2003. "Exploring Formula Allocation for the European Union," Asia-Pacific Financial Markets, Springer, vol. 10(6), pages 695-711, November. [Downloadable!] (restricted)
  3. Jack Mintz, 2004. "Corporate Tax Harmonization in Europe: It's All About Compliance," Asia-Pacific Financial Markets, Springer, vol. 11(2), pages 221-234, March. [Downloadable!] (restricted)
  4. Jack Mintz, 2004. "Corporate Tax Harmonization in Europe: It's All About Compliance," International Tax and Public Finance, Springer, vol. 11(2), pages 221-234, 03. [Downloadable!]
  5. Fred Ramb & Alfons Weichenrieder, 2004. "Taxes and the Financial Structure of German Inward FDI," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  6. Goolsbee, Austan & Maydew, Edward L., 2000. "Coveting thy neighbor's manufacturing: the dilemma of state income apportionment," Journal of Public Economics, Elsevier, vol. 75(1), pages 125-143, January. [Downloadable!] (restricted)
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  7. Becker, Sascha O. & Ekholm, Karolina & Jäckle, Robert & Muendler, Marc-Andreas, 2005. "Location Choice and Employment Decisions: A Comparison of German and Swedish Multinationals," CEPR Discussion Papers 4887, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Douglas Shackelford & Joel Slemrod, 1998. "The Revenue Consequences of Using Formula Apportionment to Calculate U.S. and Foreign-Source Income: A Firm-Level Analysis," International Tax and Public Finance, Springer, vol. 5(1), pages 41-59, February. [Downloadable!] (restricted)
  9. Ruediger Pethig & Andreas Wagener, 2003. "Profit Tax Competition and Formula Apportionment," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  10. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer, vol. 10(6), pages 673-93, November. [Downloadable!] (restricted)
    Other versions:
  11. 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. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
  13. Alfons J. Weichenrieder & Jack Mintz, 2008. "What determines the use of holding companies and ownership chains?," Working Papers 0803, Oxford University Centre for Business Taxation. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert E. Lipsey, 2008. "Measuring the Location of Production in a World of Intangible Productive Assets, FDI, and Intrafirm Trade," NBER Working Papers 14121, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Robert E. Lipsey, 2007. "Defining and Measuring the Location of FDI Output," NBER Working Papers 12996, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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