Why the European Union Should Adopt Formula Apportionment with a Sales Factor*

Using a two‐country tax competition model with a multinational enterprise (MNE), this paper addresses the question of whether the European Union should replace separate accounting (SA) in corporate income taxation by formula apportionment (FA) and, if so, which apportionment factors should be used. Our main result is that FA with a sales factor may mitigate or even eliminate fiscal externalities caused by the countries' tax policy. Hence, our analysis provides a microfoundation for the sales apportionment factor. In an empirical calibration to the EU‐15 we show that the transition from SA to FA with a sales‐only formula raises average tax rates by 2% and average tax revenues by 1 billion euros or 0.1% of GDP. These effects result in an increase of welfare.     

Corporate tax and location choice for multinational firms

This article examines the effects of corporate tax on these location decisions of newly established multinational subsidiaries across 26 European countries over an 8-year period. We contribute to the existing literature by examining the effects of a non-linear response of firm location decisions to changes in the tax rate. We also show that there are large variations in the sensitivity to tax rates across sectors and firm size groups. In particular, financial sector firms are more than twice as sensitive to changes in corporation tax rates relative to other sectors. Our baseline result is a finding that a 1% increase in the statutory or policy rate of corporation tax would lead to a reduction in the conditional location probability of 0.68%. Using the effective average tax rate, the marginal effect implies a reduction in the location probability of 1.15% following a 1% increase in the tax rate. Although overall tax has the expected negative effect on location probability, the marginal effect of an increase is lower at higher rates of tax.     

Profit-shifting from Czech multinational companies to European tax havens

Although tax havens have been affecting other countries for decades, only in recent years have the associated challenges been subject to intensive scrutiny in both research and policy areas. We contribute to the growing evidence of corporate tax base erosion and profit-shifting by testing multinational companies’ ownership links to individual tax havens rather than to groups of them, as is the case with most previous research. Our company-level analysis suggests that profit shifts through debt financing from the Czech Republic to Luxembourg, Switzerland and, to a lesser extent, the Netherlands. We have ascertained that tax havens are not limited to tiny islands and may actually be found among European countries. We also provide rough estimates of the impact of this profit-shifting on tax revenues as well as a policy recommendation.     

The effects of company taxation in EU accession countries on German FDI1

This article investigates how company taxation affects German foreign direct investment (FDI) in European Union (EU) accession countries. In 2004 and 2007, 10 former socialist eastern European countries joined the EU. Although the EU integration is associated with increasingly favourable investment conditions, accession countries also pursue active strategies to attract foreign firms. In particular, taxes on corporate income have been significantly reduced during the last decade. We analyse whether corporate tax policies of eastern European countries affect three aspects of multinational activity: the location decision, the investment decision and the capital structure choice. The results suggest that local taxes are negatively related to both location and investment decisions. The analysis of the capital structure confirms that higher local taxes imply higher debt‐to‐capital ratios.     

Cross-border tax effects on affiliate investment—Evidence from European multinationals

Recent studies suggest that multinational firm activities at home and abroad are positively correlated which may be due to the use of common inputs (like marketing, patents, etc.). Then, a cost shock at one location may lead to reduced activity in all other locations within the firm. In this paper, we theoretically and empirically analyze national corporate tax policy in such a setting. Our main hypothesis is that corporate taxation at the parent location not only reduces the parent's capital stock but also lowers capital stocks at affiliates abroad. Using micro data on European multinational firms, we confirm the hypothesis showing that a 10 percentage point increase in corporate tax rates is associated with a 5.6% decrease in the affiliate's capital stock. From a welfare point of view, this cross-border tax effect on the capital stock gives rise to a negative fiscal externality of corporate taxation which is empirically shown to compensate a substantial fraction of the well-known positive externality due to profit shifting.     

Redistribution with Unobservable Bequests: A Case for Taxing Capital Income

This paper addresses the question of the optimal taxation of labour and interest income in an overlapping generations model with two unobservable characteristics, ability and inheritance. We assume realistically that saving can only be taxed anonymously, whereas the tax on labour earnings can be individualized and made non-linear. In such a setting, we show that a withholding tax on interest income along with a non-linear tax on labour income is desirable. The role of interest income taxation is to indirectly tax inherited wealth.
JEL Classification D 63, H 2     

US income taxation of new financial products

This paper discusses the response of the US federal income tax to financial innovation. Income taxation in the US and elsewhere has traditionally relied on distinctions, such as the difference between fixed and contingent returns, that can be undermined by new financial products. The principal tax law responses to innovative products have been: (1) transactional analysis, which aggregates or disaggregates new transactions to conform them to existing legal categories, (2) taxation of changes in market value, rather than realization events, (3) taxation based on an assumed formula, and (4) anti-avoidance administrative approaches.     

欧洲主要发达国家近期税制改革及其对中国的启示

近两年,以英、德、法为首的欧洲主要发达国家针对经济和财政运行中出现的新问题,纷纷制定了符合本国国情的税制改革方案,希望通过调整税收制度来改善社会经济运行环境。中国制定新一轮税制改革方略应立足中国现实,而设计税制改革目标的方案需视国际税收的影响、坚持税收中性和政府调控相结合的原则,进一步完善税制结构。     

The repatriation incentive of the foreign dividend exemption system

Due to the high taxation of domestic corporate income, Japanese multinational enterprises have avoided to repatriate foreign profits to Japan for quite some time. As a consequence, the Japanese government introduced a new taxation system in 2009 – the so called dividend exemption system – which was aimed at reducing the effective tax burden of foreign dividends of Japanese multinational companies in order to increase tax revenue and stimulate economic growth. Applying a theoretical framework which allows comparing the repatriation incentive of the old and new Japanese tax systems, we find that in the long-run the tax regime change fails to incentivize foreign subsidiaries to repatriate foreign profits. Especially subsidiaries with high leverage located in countries with low corporate taxes and low dividend taxes might reinvest rather than distribute their earnings in the dividend exemption method.     

Formula apportionment vs. separate accounting: A private information perspective

In 2002, the European Commission recommended that member countries use formula apportionment procedures to tax multinational companies. This departure from the standard separate accounting (transfer pricing) approach is an attempt to reduce the costs and distortions associated with auditing transfer prices. Unfortunately, apportionment formulas create their own economic distortions and, contrary to popular belief, they do not eliminate distortions due to asymmetric information between the multinational and the national tax authorities. In this paper, I explicitly model the role of private information in two tax competition games: one in which tax liabilities are calculated under formula apportionment and one in which tax liabilities are calculated under separate accounting and transfer prices are audited. Switching to a formula apportionment system affects the after-tax profit of multinationals and the tax revenues paid by both domestic and foreign firms. The direction and magnitude of the changes depend on the accuracy of the auditing technology and non-monotonically on multinational costs. The switch will have different effects on the tax receipts from domestic and foreign firms.     

Transfer Pricing and Strategic Taxation of Globally Joint Inputs

This paper models strategic taxation policy of home and host governments when a multinational enterprise sets transfer prices on globally joint inputs such as research and development. Tax credit and deduction allowances, as well as no taxation of foreign-earned profits, result in identical optimal transfer-price solutions and national income effects in both countries. An equilibrium home-tax solution is to tax foreign-earned profits at a higher rate than domestically earned profits. The multiantional responds by shifting profits abroad through transfer-pricing mechanisms.     

Asymmetric Capital Tax Competition with Profit Shifting

This paper analyses capital tax competition between jurisdictions of different size when multinational firms can shift some fraction of their tax base between them. For the case of revenue maximizing governments, we show that introducing profit shifting will not generally increase downward pressure on tax rates. We find that profit shifting decreases the tax-base sensitivity of the low tax jurisdiction while increasing the sensitivity of the high tax jurisdiction. Tax rates will converge as a result of additional profit shifting opportunities. This will be the case even though in general equilibrium tax rates in both jurisdictions may decrease or increase.     

Tax competition,tax coordination and tax harmonization: The effects of EMU

There is little doubt that the step towards a monetary union in Europe will increase both the distorionary effects of existing differences in national tax systems and the intensity of tax competition for internationally mobile commodity and factor tax bases. This paper discusses selected issues of commodity and capital tax coordination that are likely to be affected by monetary unification. Starting from the distortive present scheme of value-added taxation in Europe we first analyze the effects of a switch to a general origin-based VAT as a way to maintain national tax rate autonomy over this important tax base. While an origin-based VAT would neither distort trade flows — both within the EU and with third countries — nor investment decisions in the long-run, its short-run effects are likely to be severe in the absence of exchange rate flexibility. In the field of capital taxation the focus switches to the feasibility of regional harmonization measures when there is no cooperation with the rest of the world. We argue that in a monetary union the mobility costs of capital will be significantly lower within the EU as compared to outside investments. This provides an efficiency argument for minimum source taxes on both interest income and corporate profits even if cooperation with third countries is infeasible.     

Can Capital Income Taxes Survive? And Should They?

The article surveys some main results in the theory of capitalincome taxation in the open economy; reviews recent trends ininternational taxation and discusses alternative blueprintsfor fundamental capital income tax reform from the perspectiveof an open economy faced with growing mobility of capital incometax bases. (JEL code: H21, H25)     

Classifying the degree of cooperative multinationality: Case study of a French multinational cooperative

In recent decades, the largest European worker cooperatives, and those that are the most emblematic in their countries, have been transformed into multinational companies. This article examines workers’-cooperative multinationality by providing a classifying tool based on the interaction between control rights and return rights held by foreign employees in the subsidiaries of multinational cooperatives. We illustrate our matrix of cooperative multinationality by classifying an internationalized historical cooperative, Up Group (formerly Chèque Déjeuner, SCOP). In the last few decades, the French cooperative Up has become a hybrid multinational player in the employee benefits industry by setting up capitalist subsidiaries both in France and overseas. The case study also reports on Up's innovative attempt to produce a global cooperative or a more democratic multinational enterprise through converting subsidiaries’ employees into associates.     

Sand in the wheels or spanner in the works? The Tobin tax and global finance

This paper presents a radical critique of the Tobin tax—atax on currency transactions—by undercutting certain assumptionsabout the size and character of the world's foreign exchangemarkets which furnish the tax with its basic rationale. Whileit is acknowledged that only a fraction of the massive volumesof FX transactions relate directly to trade in goods and servicesor to cross border investments, it is denied that all the residualtransactions are motivated purely by exchange rate considerations(speculative or hedging activities). Rather, the argument isthat a significant proportion of FX trades have money marketcharacteristics and that these trades, together with domesticmoney market transactions, play an important role in the dayto day operation of the global financial system. This perspectiveis used to show that the imposition of a Tobin tax would causeextensive material damage to the system, with consequences thatmay run counter to the expectations of supporters of the tax.     

The Dilemmas of Tax Coordination in the Enlarged European Union

This study evaluates the economic effects of corporate tax coordinationin the enlarged European Union (EU) using a computable generalequilibrium model. Our main findings are as follows: (i) Corporatetax coordination can yield modest aggregate welfare gains. The2004 enlargement of the EU has increased the potential gainsfrom tax harmonization, provided corporate tax rates and taxbases are harmonized at their unweighted averages. (ii) Allscenarios for coordination leave some EU Member States as winnersand others as losers. An agreement on tax coordination is thereforelikely to require elaborate compensation mechanisms. (iii) Thelarge and diverse country effects suggest that Enhanced Cooperationfor a subset of the Member States may be the most likely routetowards tax coordination. (iv) Identifying winners and losersfrom coordination for the purpose of a compensation mechanismmay be problematic, since countries experiencing gains in GDPand welfare tend to lose tax revenues, and vice versa. (JELcodes: H25, H73, H87)     

税收文化刍议

本文从文化的内含出发,界定了税收文化的内涵和内容;从税收文化的历史和现实出发,重点提出了重建税收文化的内容--重建纳税人理念、征税人理念、用税人理念.     

含有负所得税的最优所得税再研究

文章在借鉴已有最优线性和非线性所得税研究成果基础上,结合中国国情提出含有负所得税的最优非线性所得税模型(有缓冲地带),即修正的Mirrlees税收函数,进而得出一些与以往研究不同的结论,从而进一步发展和充实了最优所得税理论。这对于在目前我国日益扩大的收入分配差距尚未根本性扭转的背景下重新审视我国现有的税收政策,通过实施负所得税制度重构收入分配政策具有重要的参考价值和借鉴意义。     

Notes and comments. Ricardo on income tax: a note

Despite the fact that Ricardo experienced Pitt's income taxpolicies, and that he regarded taxation as the most importantissue to which the principles of political economy should beapplied, he rarely referred to actual tax reforms. This paperindicates that Ricardo's system of economics cannot bring aboutany tax that is completely compatible with his main criteriafor taxation (distribution neutrality, price neutrality andminimum taxation) as well as certainty, convenience and thesecurity of property. This result may explain why Ricardo didnot say which type of taxation system the British governmentshould establish.