IDEAS home Printed from https://ideas.repec.org/a/ntj/journl/v63y2010i4p1145-1184.html
   My bibliography  Save this article

Formula Apportionment: Is It Better Than the Current System and Are There Better Alternatives?

Author

Listed:
  • Altshuler, Rosanne
  • Grubert, Harry

Abstract

This analysis of formula apportionment compared to the current U.S. system recognizes that income shifting has two main sources, excess returns attributable to intangibles and debt, and that a major goal of income division systems is preserving neutrality between arm’s length and related party transactions. A model demonstrates that separate accounts (SA) and formula apportionment (FA) distort behavior along different margins. Simulations indicate that FA has no clear advantage over SA. Static estimates of U.S. tax revenues under FA suggest potentially large increases, but simulations show that revenue under FA and SA is similar once behavioral responses are taken into account.

Suggested Citation

  • Altshuler, Rosanne & Grubert, Harry, 2010. "Formula Apportionment: Is It Better Than the Current System and Are There Better Alternatives?," National Tax Journal, National Tax Association, vol. 63(4), pages 1145-1184, December.
  • Handle: RePEc:ntj:journl:v:63:y:2010:i:4:p:1145-1184
    as

    Download full text from publisher

    File URL: https://www.ntanet.org/NTJ/63/4/ntj-v63n04p1145-1184-formula-apportionment-better-than.pdf
    Download Restriction: no

    File URL: https://www.ntanet.org/NTJ/63/4/ntj-v63n04p1145-1184-formula-apportionment-better-than.html
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, pages 401-422.
    2. Altshuler, Rosanne & Grubert, Harry, 2003. "Repatriation taxes, repatriation strategies and multinational financial policy," Journal of Public Economics, Elsevier, pages 73-107.
    3. 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.
    4. Altshuler, Rosanne & Grubert, Harry, 2003. "Repatriation taxes, repatriation strategies and multinational financial policy," Journal of Public Economics, Elsevier, pages 73-107.
    5. Desai, Mihir A. & Hines, James R. Jr., 2004. "Old Rules and New Realities: Corporate Tax Policy in a Global Setting," National Tax Journal, National Tax Association, vol. 57(4), pages 937-960, December.
    6. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 149-182.
    7. Hines, James Jr., 1994. "Credit and deferral as international investment incentives," Journal of Public Economics, Elsevier, pages 323-347.
    8. De Waegenaere, Anja & Sansing, Richard & Wielhouwer, Jacco L., 2007. "Using Bilateral Advance Pricing Agreements to Resolve Tax Transfer Pricing Disputes," National Tax Journal, National Tax Association, vol. 60(2), pages 173-191, June.
    9. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, pages 107-121.
    10. Hines, James Jr., 1994. "Credit and deferral as international investment incentives," Journal of Public Economics, Elsevier, pages 323-347.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dhammika Dharmapala, 2016. "The Economics of Corporate and Business Tax Reform," CESifo Working Paper Series 5864, CESifo Group Munich.
    2. Fuest, Clemens & Spengel, Christoph & Finke, Katharina & Heckemeyer, Jost & Nusser, Hannah, 2013. "Profit shifting and 'aggressive' tax planning by multinational firms: Issues and options for reform," ZEW Discussion Papers 13-044, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Wildasin, David E., 2010. "State Corporation Income Taxation: An Economic Perspective on Nexus," National Tax Journal, National Tax Association, vol. 63(4), pages 903-924, December.
    4. Ortmann, Regina & Pummerer, Erich, 2015. "Formula apportionment or separate accounting? Tax-induced distortions of multinationals' locational investment decisions," arqus Discussion Papers in Quantitative Tax Research 198, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. Harry Grubert & Rosanne Altshuler, 2013. "Fixing the System: An Analysis of Alternative Proposals for the Reform of International Tax," National Tax Journal, National Tax Association, pages 671-712.
    6. Eichfelder, Sebastian & Hechtner, Frank & Hundsdoerfer, Jochen, 2017. "Formula apportionment: Factor allocation and tax avoidance," arqus Discussion Papers in Quantitative Tax Research 220, arqus - Arbeitskreis Quantitative Steuerlehre.
    7. Raymond Mataloni & Kim Ruhl & Dylan Rassier & Fatih Guvenen, 2016. "Offshore Profit Shifting and Domestic Productivity Measurement," 2016 Meeting Papers 1382, Society for Economic Dynamics.
    8. Fuest, Clemens & Spengel, Christoph & Finke, Katharina & Heckemeyer, Jost H. & Nusser, Hannah, 2013. "Profit shifting and 'aggressive' tax planning by multinational firms: Issues and options for reform," ZEW Discussion Papers 13-078, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. Harry Grubert & Rosanne Altshuler, 2013. "Fixing the System: An Analysis of Alternative Proposals for the Reform of International Tax," National Tax Journal, National Tax Association, pages 671-712.
    10. Wolfram F. Richter, 2017. "Taxing Intellectual Property in the Global Economy: A Plea for Regulated and Internationally Coordinated Profit Splitting," CESifo Working Paper Series 6564, CESifo Group Munich.
    11. Eichfelder, Sebastian & Hechtner, Frank & Hundsdoerfer, Jochen, 2015. "Formula apportionment: Factor allocation and tax avoidance," arqus Discussion Papers in Quantitative Tax Research 199, arqus - Arbeitskreis Quantitative Steuerlehre.
    12. Eichfelder, Sebastian & Hechtner, Frank & Hundsdoerfer, Jochen, 2015. "Formula apportionment: Factor allocation and tax avoidance," Discussion Papers 2015/30, Free University Berlin, School of Business & Economics.
    13. repec:bpj:aelcon:v:7:y:2017:i:1:p:4:n:5 is not listed on IDEAS
    14. Harry Grubert, 2014. "Book Review: Fixing U.S. International Taxation by Daniel N. Shaviro (Oxford University Press, 2014, New York, Ny, 223 Pages)," National Tax Journal, National Tax Association, pages 745-754.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ntj:journl:v:63:y:2010:i:4:p:1145-1184. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ann Crampton). General contact details of provider: http://edirc.repec.org/data/ntaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.