How would formula apportionment in the EU affect the distribution and the size of the corporate tax base? An analysis based on German multinationals

Clemens Fuest, Thomas Hemmelgarn and Fred Ramb

No 2006,20, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: This paper analyses the effects of introducing a common EU tax base with formula apportionment on the size of the EU wide tax base and on the distribution of the tax base between the EU member countries. We use a combined dataset of Deutsche Bundesbank's Foreign Direct Investment data (MiDi) and corporate balance sheet data (Ustan and Hoppenstedt) for the tax base estimations. The data is used to construct i) a separate accounting and ii) a formula apportionment tax base for the firms in the sample. Our results suggest that due to border crossing loss-offset, the EU wide corporate tax base represented by our data sample shrinks significantly. Smaller countries which are usually considered to attract book profits under the current system, i.e. Ireland and the Netherlands, tend to lose a larger part of their tax base than larger countries like Germany, Italy, France or Great Britain. However, these results should be evaluated in the light of the limitations of the data used in this study since our analysis is based on German FDI data only. Furthermore, the calculations do not take into account behavioural responses of companies caused by such a system change.

Keywords: EU Tax Base; Formula Apportionment; Multinational Companies (search for similar items in EconPapers)
JEL-codes: F23 H25 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-eec and nep-pbe
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Citations: View citations in EconPapers (14)

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