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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

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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Bibliographic Info

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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References

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  1. 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.
  2. Fuest, Clemens & Huber, Bernd & Mintz, Jack, 2005. "Capital mobility and tax competition," Munich Reprints in Economics 20329, University of Munich, Department of Economics.
  3. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
  4. 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.
  5. Becker, Sasha O & Ekholm, Karolina & Jackle, Robert & Muendler, Marc-Andreas, 2004. "Location Choices and Employment Decisions: A Comparison of German and Swedish Multinationals," University of California at San Diego, Economics Working Paper Series qt2fq490pd, Department of Economics, UC San Diego.
  6. 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.
  7. 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.
  8. Fred Ramb & Alfons Weichenrieder, 2004. "Taxes and the Financial Structure of German Inward FDI," CESifo Working Paper Series 1355, CESifo Group Munich.
  9. 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.
  10. Rüdiger Pethig & Andreas Wagener, 2007. "Profit tax competition and formula apportionment," International Tax and Public Finance, Springer, vol. 14(6), pages 631-655, December.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Riedel, Nadine & Runkel, Marco, 2007. "Company tax reform with a water's edge," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1533-1554, August.
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Citations

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Cited by:
  1. Daniela Pirvu & Logica Banica & Alina Hagiu, 2011. "Implications of the introduction of the Common Consolidated Corporate Tax Base for tax revenues in Romania," Financial Theory and Practice, Institute of Public Finance, vol. 35(2), pages 197-215.
  2. repec:cmj:journl:y:2013:i:28:pirvud is not listed on IDEAS
  3. Robert E. Lipsey, 2007. "Defining and Measuring the Location of FDI Output," NBER Working Papers 12996, National Bureau of Economic Research, Inc.
  4. Logica BANICA & Daniela PIRVU & Alina HAGIU, 2011. "Software tool for a Comparative Analysis of Romanian fiscality with other country in European Union," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 10(2), pages 74-88.
  5. Robert E. Lipsey, 2010. "Measuring The Location Of Production In A World Of Intangible Productive Assets, Fdi, And Intrafirm Trade," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages S99-S110, 06.

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