How would the introduction of an EU-wide formula apportionment affect the distribution and size of the corporate tax base? An analysis based on German multinationals |
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Authors: | Clemens Fuest Thomas Hemmegarn Fred Ramb |
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Institution: | 1.Department of Economics,University of Cologne,Cologne,Germany;2.Deutsche Bundesbank,Economic Research Centre,Frankfurt am Main,Germany |
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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 are 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 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 behavioral responses
of companies caused by such a system change.
JEL Code: F23 · H25
This paper represents the authors' personal opinions and does not necessarily reflect the views of the Deutsche Bundesbank
or its staff. We thank Heinz Herrmann, Jana Kremer, Alfons Weichenrieder, and the participants of the Deutsche Bundesbank
FDI Workshop held on September 13, 2005, in Frankfurt for their valuable comments. We are also indebted to George Zodrow and
two anonymous referees. The usual disclaimer applies.
An erratum to this article can be found at |
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Keywords: | EU tax base Formula apportionment Multinational companies |
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