Tax revenue losses through cross-border loss offset: An insurmountable hurdle for formula apportionment?

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 This paper analyzes the relevance of firm losses for tax revenues and welfare when switching from separate accounting to a system of tax base consolidation with formula apportionment. We find that a system change unambiguously decreases tax revenues in the short run, in which neither firms nor governments can adjust their behavior, due to the cross-border loss offset inherent to formula apportionment. In the medium run, in which only firms can adjust their strategies, tax revenues are still lower under formula apportionment if the probability of incurring losses or the costs of profit shifting are sufficiently small. However, in the long run, where both firms and governments are able to adjust their behavior after the system change, a switch from separate accounting to formula apportionment is beneficial under the aforementioned conditions. Furthermore, we show that a higher weight of input shares in the apportionment formula may mitigate tax competition because, contrary to output factors, input factors provide an insurance against tax revenue shortfalls due to loss-making affiliates. Terms of use: Documents inJEL-Codes: H730, H250, F230.

How Digital Tax Socialization Moderates E-Filling Against Individual Taxpayer Compliance

“…Tax collection and enforcement of tax laws are difficult to enforce in many countries (Sivadasan & Slemrod, 2008), (Tiefenbach & Kohlbacher, 2015), and (Vilaça, 2012), taxpayer compliance is a major concern for policymakers, to directly increases revenue by considering the determinants of tax revenue (Andreoni & Chang, 2018) and (Schafferer et al, 2018). There are many ways that policymakers can take to determine strategies to improve taxpayer compliance (eg Doerrenberg, 2015), (Gnangnon, 2016), and (Mardan & Stimmelmayr, 2017).…”

“…Taxpayers will find it simpler to report their obligations with the help of digital tax services (Arianto & Pratama, 2021), (Nurlaela, 2017a), and (Stefani, 2018). With the development of digital tax services, it is hoped that taxpayers can full their obligations (Agrawal & Wildasin, 2019), (Foros et al, 2019), and (Mardan & Stimmelmayr, 2017). In addition, tax socialization plays a role in introducing digital tax service mechanisms to the public, so that the public as taxpayers will understand it (Andreas & Savitri, 2015), (Herawati et al, 2018), and (Savitri & Musfialdy, 2016).…”

Tax Losses and Ex-Ante Offshore Transfer of Intellectual Property

“…Finally, loss offset provisions and loss-making MNC affiliates have been relatively neglected in the academic literature despite their 7 Haufler and Schjelderup (2000) and Gresik (2001), for instance, analyze the MNC's choice of the optimal royalty payment in a setup of a given IP location and with an unconstrained transfer pricing choice among profitable affiliates. Kalamov and Runkel (2016) and Mardan and Stimmelmayr (2018) explore the transfer pricing choice for IP in a setting with profitable and loss-making affiliates, while Koethenbuerger et al (2019) consider the case of a constrained transfer pricing choice. For empirical evidence on tax-motivated transfer pricing see, among others, Clausing (2003), Cristea andNguyen (2016), andDavies et al (2018).…”

Profit shifting and investment effects: The implications of zero-taxable profits

“…2 Theoretical contributions on corporate losses and profit shifting are scarce. Two exceptions are Kalamov and Runkel (2016) and Mardan and Stimmelmayr (2018). Both studies rely on interior solutions to characterize transfer pricing incentives.…”