Formulary Apportionment and Group Taxation in the European Union: Insights from the United States and Canada.

In 2001, the European Commission endorsed a future company tax strategy that would allow EU companies the option of calculating their EU profits on a common consolidated tax base and allow Member States to tax their share of that base at national rates. Implementing this strategy requires developing a formula to distribute the common tax base across the Member States. Although EU Member States currently do not use formulary methods to distribute a common consolidate tax base across national boundaries, Canada and the United States have extensive experience using formulary methods to distribute income across sub-national boundaries. Thus, the European Union can turn to North America to gain valuable insights into the design of a formulary apportionment system with common base taxation. This paper evaluates key issues that may arise when implementing common consolidated base taxation with formulary apportionment in the EU. These issues include the formula design, the definition of the company group and the definition and scope of the tax base. The paper also discusses potential economic consequences that may arise and suggests a potential apportionment system for the European Union.European Union, Corporate Taxation, Formulary apportionment, common consolidated base taxation, EU company tax reform

Allowance for Shareholder Equity - Implementing a Neutral Corporate Income Tax in the European Union

This paper proposes the introduction of a consumption-based corporate income tax in the European Union. Our proposal would guarantee neutrality regarding investment decisions and at the same time increase cost-efficiency. The proposal is based on the S-base cash flow tax, where transactions within the corporate sector are not at all taxable and only transactions be-tween shareholders and corporations are subject to tax. In contrast to existing S-base cash flow tax systems, tax deductibility of investments is deferred. Rather, the acquisition costs and capital endowments are compounded at the capital market rate and are set off against fu-ture capital gains. Dividends and withdrawals are fully taxable at the shareholder level. Be-cause of the similarities to the Allowance for Corporate Equity (ACE) tax our proposal is called Allowance for Shareholder Equity (ASE tax). The ASE tax exhibits the same neutrality properties as the traditional cash flow tax. More-over, the compounded inter-temporal credit method ensures that it is neutral with respect to the decision between domestic and foreign investment. To increase acceptance of the ASE tax, current taxpayers' documentation requirements will be reduced rather than extended. Our proposal is shaped in a way that it could be realized in a single EU country or in all member states of the EU

Cross-border loss offset and formulary apportionment : How do they affect multijurisdictional firm investment spending and interjurisdictional tax competition ?

Motivated by the EU Commission's suggested company tax reforms, this paper investigates how cross-border loss offset and formulary apportionment of a consolidated tax base affect the investment and transfer pricing behaviour of a multijurisdictional firm, and how they affect the behaviour of governments potentially engaged in tax competition. The paper shows that cross-border loss offset mitigates both the reactions of a multijurisdictional firm to tax changes and the amount of tax competition engaged in by governments. However, formulary apportionment (with a consolidated tax base) boosts the sensitivity of firms to tax changes and increases the scope for interjurisdictional tax competition as well. For governments, formulary apportionment operates like a risk-sharing or partial equalisation mechanism.Motivé par une récente suggestion de réforme fiscale émise par la Commission Européenne, ce texte étudie comment l'introduction de la compensation internationale des pertes au sein d'une multinationale, et l'introduction subséquente de la répartition proportionnelle des revenus imposables consolidé de cette entreprise selon une formule préétablie, peuvent affecter la valeur de la multinationale, la sensibilité de la distribution de ses investissements aux variations des taux de taxation et la concurrence fiscale entre juridictions. Il montre notamment que la compensation internationale des pertes accroît la valeur de l'entreprise, réduit sa sensibilité à des variations des taux d'impôts et atténue l'intensité de la concurrence fiscale. Par contre, la répartition proportionnelle des revenus imposables consolidés selon une formule préétablie renforce cette sensibilité et cette intensité. Pour les états, en particulier, la formule de répartition envisagée peut être vue comme un mécanis

Comment la compensation internationale des pertes et la répartition proportionnelle des revenus imposables peuvent affecter les choix des multinationales et la concurrence fiscale

This study was prompted by the EU Commission’s end-2001 suggestions for corporate tax reform. The authors investigate how cross-border loss offset and formulary apportionment of a consolidated tax base affect a multi-jurisdictional firm’s value and investment behavior, as well as the behavior of governments potentially engaged in tax competition. The paper shows that cross-border loss offset increases the value of the firm, can mitigate its reactions to tax changes, and can reduce tax competition between governments. Introducing cross-border loss offset arguably improves the tax system, even without resorting to formulary apportionment of a consolidated tax base.Motivé par les suggestions émises fin 2001 par la Commission européenne, ce texte étudie comment l’introduction de la compensation internationale des pertes au sein d’une multinationale et celle de la répartition de l’imposable consolidé de celle-ci, selon une formule préétablie, peuvent affecter sa valeur , la sensibilité de la distribution de ses investissements aux variations des taux de taxation et la concurrence fiscale entre juridictions. Il montre notamment que la compensation internationale des pertes accroît la valeur de l’entreprise et peut réduire sa sensibilité aux taux d’impôts et atténuer la concurrence fiscale. Il souligne que l’introduction de la compensation internationale des pertes constitue une amélioration bienvenue du système fiscal , même en dehors d’un mécanisme de répartition proportionnelle du revenu consolidé.Weiner Joann Martens, Gérard Marcel. Comment la compensation internationale des pertes et la répartition proportionnelle des revenus imposables peuvent affecter les choix des multinationales et la concurrence fiscale. In: Économie & prévision, n°173, 2006-2. pp. 65-77