Can Formula Apportionment Really Prevent Multinational Enterprises from Profit Shifting? The Role of Asset Valuation, Intragroup Debt, and Leases

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract The European Commission has been supporting a transition from a system of separate accounting to a system of formula apportionment. In 2011, it presented a proposal for a council directive on a Common Consolidated Corporate Tax Base (CCCTB). Formula apportionment is often considered more resistant to profit shifting and assumed to reduce compliance costs. We use a dynamic model of tax accounting based on neoclassical investment theory and effective tax rates to determine whether, and to what extent, formula apportionment mitigates the efficiency of typical profit-shifting measures. We focus on the roles of transfer pricing and intragroup debt financing (through loans and leases) under both separate accounting and formula apportionment. Our results show that instead of eliminating tax planning strategies, the proposed system will simply induce a shift from manipulating reported profits to influencing the apportionment key. Inside the European Union, the CCCTB may be able to render thin capitalisation rules and transfer pricing documentation redundant. However, formula apportionment invites new forms of tax planning involving manipulating the book value of assets rather than profit shifting. Terms of use: Documents in

Uncertainty in Weighting Formulary Apportionment Factors and its Impact on After-Tax Income of Multinational Groups

“…Eberhartinger and Petutschnig (2014) focus on the unclear definition of the term "employee" which is a factor of the apportionment formula under the proposed CCCTB system. Kiesewetter et al (2014), in their analysis, consider room for discretion concerning the apportionment factor "assets". Both studies address a specific form of factor uncertainty.…”

Is there a Real Chance to Adopt the CCCTB without UK Participation in the EU?

“…The five stream of research on the CCCTB is concentrated on the concept of the CCCTB and the prediction of tax revenues for the purpose of a new taxbased own resources to finance the EU budget; this stream includes studies such as Schratzenstaller and Krenek (2019) and Nerudová, Solilová and Dobranschi (2016). The last stream of research on the CCCTB is focused on the issue how the CCCTB is able to reach fair taxation together with the elimination of profit shifting and tax base erosion, such as Valenduc (2019), Hentze (2019), Eichfelder, Hechtner and Hundsdoerfer (2018), de Wilde (2017), Ortmann and Sureth-Sloane (2016), Keser, Kimpel and Oestreicher (2016), Kiesewetter, Steigenberger and Stier (2018) and Martini, Niemann and Simons (2012).…”

Herausforderungen und Entwicklungsperspektiven des Steuersystems

“…83 Vgl. Klassen und Shackelford (1998), Mintz und Smart (2004) und Kiesewetter et al (2018) zu den Wirkungen von Formula Apportionment auf die Gewinnverlagerung, Goolsbee und Maydew (2000) und Pethig und Wagener (2007) zu den Wirkungen auf den Steuerwettbewerb, Buettner et al (2011) auf die Wahl des Konsolidierungskreises, Gupta und Hofmann (2003) und Dietrich und Kiesewetter (2007 zu den Wirkungen auf die auf Investitionspolitik. 84 Vgl.…”