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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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  • 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.

Suggested Citation

  • Fuest, Clemens & Hemmelgarn, Thomas & Ramb, Fred, 2006. "How would formula apportionment in the EU affect the distribution and the size of the corporate tax base? An analysis based on German multinationals," Discussion Paper Series 1: Economic Studies 2006,20, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:4471
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    References listed on IDEAS

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    1. Rüdiger Pethig & Andreas Wagener, 2007. "Profit tax competition and formula apportionment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(6), pages 631-655, December.
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    Cited by:

    1. Daniela PÎRVU, 2013. "Twhy Ccctb Disadvantages Less Developed Countries Of The European Union," SEA - Practical Application of Science, Fundația Română pentru Inteligența Afacerii, Editorial Department, issue 1, pages 317-332, June.
    2. Anna Leszczyłowska, 2016. "Provisions for Future Liabilities and Effective Corporate Income Tax Rate," Gospodarka Narodowa, Warsaw School of Economics, issue 3, pages 57-72.
    3. repec:cmj:journl:y:2013:i:28:pirvud is not listed on IDEAS
    4. Melle Marco C., 2014. "Eine europäische Bemessungsgrundlage für die Körperschaftsteuer? Konzeption und ordnungsökonomische Analyse / Conceptual design and constitutional economics analysis of a European tax base for corpora," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 65(1), pages 133-156, January.
    5. Danuše Nerudová & Veronika Solilová, 2015. "The Impact of the CCCTB Introduction on the Distribution of the Group Tax Bases Across the EU: The Study for the Czech Republic," Prague Economic Papers, University of Economics, Prague, vol. 2015(6), pages 621-637.
    6. Doina Radulescu, 2007. "From Separate Accounting to Formula Apportionment: Analysis in a Dynamic Framework," CESifo Working Paper Series 2122, CESifo Group Munich.
    7. 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 99-110, June.
    8. 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.
    9. 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.
    10. Robert E. Lipsey, 2007. "Defining and Measuring the Location of FDI Output," NBER Working Papers 12996, National Bureau of Economic Research, Inc.
    11. Anna Leszczyłowska, 2015. "Deductibility of Provisions under the CCCTB Proposal and Its Effects on Companies: The Case of Poland," European Financial and Accounting Journal, University of Economics, Prague, vol. 2015(4), pages 19-32.

    More about this item

    Keywords

    EU Tax Base; Formula Apportionment; Multinational Companies;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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