Formula Apportionment: Is It Better Than the Current System and Are There Better Alternatives?

Rosanne Altshuler and Harry Grubert

National Tax Journal, 2010, vol. 63, issue 4, 1145-1184

Abstract: This analysis of formula apportionment compared to the current U.S. system recognizes that income shifting has two main sources, excess returns attributable to intangibles and debt, and that a major goal of income division systems is preserving neutrality between arm’s length and related party transactions. A model demonstrates that separate accounts (SA) and formula apportionment (FA) distort behavior along different margins. Simulations indicate that FA has no clear advantage over SA. Static estimates of U.S. tax revenues under FA suggest potentially large increases, but simulations show that revenue under FA and SA is similar once behavioral responses are taken into account.

Date: 2010
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Working Paper: Formula Apportionment: Is it better than the current system and are there better alternatives? (2009)
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