An Assessment of Global Formula Apportionment

Formula apportionment as a way to attribute taxable profits of multinationals across jurisdictions is receiving increased attention. This paper reviews existing literature and discusses experiences in selective federal states to evaluate the economic properties of formula apportionment relative to the current international tax regime that is based on separate accounting. It highlights major advantages, such as the elimination of profit shifting within multinational groups; and it discusses new distortions and the impact on tax competition. The analysis exploits different datasets to assess the direct revenue implications for individual countries under alternative formulas. The distributional effects across countries are found to be large, reflecting major discrepancies between where profits are currently attributed and where factors of production are located or sales take place. The largest losses appear in investment hubs (i.e. countries with a disproportionate ratio of foreign direct investment to GDP), while several large advanced countries are likely to gain. Developing countries gain most likely if employment receives a large weight in the formula; they also tend to benefit, on average, from a formula based on sales by destination.

The CCCTB initiative as a possible solution to the conflict between the internal market and national tax autonomy

In 2016, the European Commission re-launched the project for a common consolidated corporate tax base with a two-step approach of two interconnected proposals of Common Corporate Tax Base (CCTB) and Common Consolidated Corporate Tax Base (CCCTB). The proposals faced fierce opposition from several Member States, even if few oppose combatting tax avoidance and eliminating tax obstacles of cross-border trade in principle. This article examines the CCCTB proposal as a possible solution to the conflict between the internal market and national tax autonomy. When focusing strictly on the said proposals in their current form, analysis of their capabilities to solve the conflict seem dim. On the other hand, if the CC(C)TB is seen as a system of formula apportionment and as an evolving framework, which can be enacted in parts of the internal market through for example enhanced cooperation, the outcast looks more positive.