The Effects of EU Formula Apportionment on Corporate Tax Revenues
The European Commission proposes to replace the current system of taxing corporate income of separate accounting by a two-step 'consolidate and apportionment' procedure. This paper uses a large set of unconsolidated firm-level data to assess the likely impact on corporate tax revenues in each Member State. Taking pre-tax profit as given, overall tax revenues would be likely to drop by 2.5 % if companies can choose whether to participate. By contrast, if they were forced to participate, total tax revenues would be likely to increase by more than 2 %, leaving some European countries, and most notably Spain, Sweden and the United Kingdom better off. We investigate how sensitive these results are to the apportionment factors used.
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