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

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Listed author(s):
  • 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.

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Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 63 (2010)
Issue (Month): 4 (December)
Pages: 1145-1184

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Handle: RePEc:ntj:journl:v:63:y:2010:i:4:p:1145-1184
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Cited by:

  1. 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.
  2. 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.
  3. Dhammika Dharmapala, 2016. "The Economics of Corporate and Business Tax Reform," CESifo Working Paper Series 5864, CESifo Group Munich.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. Raymond Mataloni & Kim Ruhl & Dylan Rassier & Fatih Guvenen, 2016. "Offshore Profit Shifting and Domestic Productivity Measurement," 2016 Meeting Papers 1382, Society for Economic Dynamics.
  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, vol. 66(3), pages 671-712, September.
  10. repec:bpj:aelcon:v:7:y:2017:i:1:p:4:n:5 is not listed on IDEAS
  11. 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, vol. 67(3), pages 745-754, September.

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