Why the European Union Should Adopt Formula Apportionment with a Sales Factor*

Eichner, Thomas; Runkel, Marco

doi:10.1111/j.1467-9442.2008.00551.x

Cited by 39 publications

(29 citation statements)

References 25 publications

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“…For example, Eichner and Runkel (2006) argue that such a formula would reduce the harmful effects of tax competition, as the fiscal externalities of corporate income taxation would be minimized. Sorensen (2004) and Agundez-Garcia (2006) have discussed the possibility of using industry or macro-based weights in these formulas.…”

Section: Appendix B: Other Formula Choicesmentioning

confidence: 99%

Allocating Business Profits for Tax Purposes: A Proposal to Adopt a Formulary Profit Split

Avi-Yonah

Clausing²,

Durst³

2008

SSRN Journal

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Section: Appendix B: Other Formula Choicesmentioning

confidence: 99%

Allocating Business Profits for Tax Purposes: A Proposal to Adopt a Formulary Profit Split

Avi-Yonah

Clausing²,

Durst³

2008

SSRN Journal

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“…Recent papers by Anand and Sansing (2000), Eggert and Schjelderup (2003), Sørensen (2004), Wellisch (2004), Kind et al (2005), Nielsen et al (2006), Riedel and Runkel (2007), Pinto (2007), Pethig and Wagener (2008) and Eichner and Runkel (2008) focus on the welfare implications of corporate taxation under SA and FA. Moreover, although the empirical evidence is still limited, the recent years have seen the emergence of a literature that empirically quantifies the distortions and economic outcomes of corporate taxation under FA.…”

mentioning

confidence: 99%

Strategic Consolidation Under Formula Apportionment

Buettner¹,

Riedel²,

Runkel³

2011

National Tax Journal

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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. Terms of use: Documents in Strategic Consolidation under Formula Apportionment AbstractThis paper argues that profit-shifting activities of multi-jurisdictional enterprises (MJE) are maintained under a tax system of consolidation and formula apportionment (FA). A theoretical model discusses how an MJE can exploit its impact on the definition of the consolidated group strategically. The analysis shows that the MJE will run individual affiliates as separate un-consolidated firms for tax purposes if intra-group tax-rate differences, and thereby potential gains from profit-shifting, are large. We test this prediction using confidential firm-level tax-return data for the local business tax in Germany. The identification strategy exploits a quasi experiment derived from a major company tax reform in 2001 that reduced the costs associated with separating out individual affiliates. Our results show that, evaluated at the sample mean, an increase in the tax-rate variance among the MJE's affiliates by one standard deviation reduces the number of consolidated affiliates by 20%.JEL Code: H32, H73.

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“…Edmiston (2002), Eichner/Runkel (2008), and Garst (2008). 4 See for instance Edmiston/Arze del Granado (2006), Lohman (2012), Institute on Taxation and Economic Policy (2012), or Federation of Tax Administrators (2013.…”

Section: Introductionmentioning

confidence: 99%

Management Incentives Under Formula Apportionment Tax-Induced Distortions of Effort and Compensation in a Principal-Agent Setting

2014

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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. The introduction of a common consolidated corporate tax base (CCCTB) and tax allocation via formula apportionment (FA) is hotly debated in the European Union (EU) since more than a decade. While the literature has thoroughly analyzed the economic effects of FA from a macro-level perspective, the firm view has been added only recently. Within this micro-level framework discussing possible tax-induced distortions of multi-jurisdictional entities' (MJE) decisions becomes feasible. Anticipating the reactions of MJEs to the introduction of FA requires considering delegation and incentivisation, because management decisions are influenced by principal agent relationships. How FA affects the demand for managerial effort is a hitherto neglected research question. Accordingly, the objective of this paper is to highlight the tax-induced distortions of managerial incentives caused by FA. For this purpose we set up a LEN-type principal-agent model with agents in two different jurisdictions. Terms of use: Documents inCompared to the case with separate taxation (ST) the principal demands increased effort and pays an increased compensation to managers in low-tax jurisdictions, if payroll enters the FA formula. Managers in high-tax jurisdictions face the opposite effect. Further, the composition of the compensation packages changes. Overall, net profit increases, because FA offers potential for profit shifting.JEL-Code: H250, M410.

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Why the European Union Should Adopt Formula Apportionment with a Sales Factor*

Cited by 39 publications

References 25 publications

Allocating Business Profits for Tax Purposes: A Proposal to Adopt a Formulary Profit Split

Allocating Business Profits for Tax Purposes: A Proposal to Adopt a Formulary Profit Split

Strategic Consolidation Under Formula Apportionment

Management Incentives Under Formula Apportionment Tax-Induced Distortions of Effort and Compensation in a Principal-Agent Setting

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