The Influence of Allocation Formula on Generation of Profit in Different Economy Sectors

Abstract

The mechanism for the distribution of the Common Consolidated Corporate Tax Base will be based on three macroeconomics factors which are considered to be the main indicators of generated profit/loss. The paper analyzes the explanatory power of proposed allocation formula for the distribution of the Common Consolidated Corporate Tax Base with respect to the sector of economic activity from the perspective of the Czech independent enterprises. The research is based on the comparison of the coefficients of determination indicating the proportion of explained variability of proposed multiple regression models. The paper concludes that the proportion of explained profitability by the allocation formula factors as are defined by the Common Consolidated Corporate Tax Base Draft Directive may differ up to 34% with regard to the sector of economic activity classified by NACE classification.

Mandatory CCCTB implementation in the Eurozone and its impact on corporate tax revenues in the Czech Republic

“…According to her, the proposed CCCTB formula factors are able to explain almost 35% of the variability in profi tability of the Czech companies, in contrast to Hines (2010), whose allocation-formula factors (the sales, assets and payroll of the U.S. companies) are able to explain almost 50% of the variability in profi tability. Furthermore, Krchnivá (2014) proves that the presence or proportion of allocation-formula factors can signifi cantly affect a country's overall tax revenues. Cobham and Loretz (2014) state that the allocation of corporate tax profi t based on the tangible assets and number of employees is benefi cial in the case of low-income countries, in contrast to the high-income countries, for which sales and costs of employees are more benefi cial factors.…”

“…Further, Riedel and Runkel (2006) underline the positive fi scal externality in the short-term CCCTB, but in the case of long-term CCCTB, they recommend the implementation of the uniform tax rate. The second stream of the research aims at the analysis of allocation formula factors with respect to the prediction of corporate income (Pethig & Wagener, 2003;Agúndéz-Garcia, 2006;Mintz, 2008;Tan, 2010;Roggeman et al, 2012;Krchnivá, 2014;Krchnivá & Nerudová 2015;Cobham & Loretz, 2014;Eberhartinger & Petutschning, 2014, and others). According to Agúndéz-Garcia (2006), the most discussed allocation-formula factor is represented by assets due to the mobility of capital and investments.…”