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

Joann Weiner

No 8, Taxation Papers from Directorate General Taxation and Customs Union, European Commission

Abstract: 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.

Keywords: European Union; Corporate Taxation; Formulary apportionment; common consolidated base taxation; EU company tax reform (search for similar items in EconPapers)
JEL-codes: F23 H25 H73 H87 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2005-03, Revised 2005-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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