The Effects of EU Formula Apportionment on Corporate Tax Revenues*

Michael Devereux · Simon Loretz

88 citations0/0 files storedFiscal Studies

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Corporate Taxation and Avoidance Economic and Fiscal Studies Taxation and Legal Issues

Abstract

Abstract The European Commission proposes to replace the current system of taxing corporate income using separate accounting by a two‐step ‘consolidation 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 per cent if companies could choose whether to participate. By contrast, if they were forced to participate, total tax revenues would be likely to increase by more than 2 per cent, leaving some European countries ‐ most notably, Spain, Sweden and the UK ‐ better off. We investigate how sensitive these results are to the apportionment factors used.

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References

2000Coveting thy neighbor’s manufacturing: the dilemma of state income apportionment 1984An Examination of Multijurisdictional Corporate Income Taxes Under Formula Apportionment 1986An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment 2003Company Tax Reform in the European Union 2000The Weighting Game: Formula Apportionment as an Instrument of Public Policy 2003Formula Apportionment and Transfer Pricing under Oligopolistic Competition

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2015International Distribution of the Corporate Tax Base: Implications of Different Apportionment Factors Under Unitary Taxation 2010Corporate tax harmonization in the EU 2009Income misattribution under formula apportionment 2008The European Commission's proposal for a common consolidated corporate tax base 2009The downside of formula apportionment: evidence on factor demand distortions 2012Transfer Pricing or Formula Apportionment? Tax‐Induced Distortions of Multinationals’ Investment and Production Decisions*2012The Taxation of Corporate Groups under Consolidation: An International Comparison

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