Corporation taxes in the European Union: Slowly moving toward comprehensive business income taxation?
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4.3 Formulary apportionment (FA)?
Under the previous proposals, the CTs would still proceed from the separate account- ing approach in determining the taxable profits of affiliated corporations in different Member States. Accordingly, profit shifting through transfer pricing manipulation would still be possible, albeit moderated by the narrowing of rate differentials. Fur- ther, provisions for the removal of tax obstacles to cross-border economic activity and business restructuring would still be needed. A comprehensive solution to these problems, if desired, can only be achieved through common base taxation. In this connection, the European Commission ( 2016a ) has launched a recalibrated proposal for a Common Consolidated Corporate Tax Base (CCCBT) for large multi- national groups with global revenues in excess of e750 million a year. The CCCBT would be allocated to Member States on the basis of three equally weighted factors: the value of assets in a Member State, the number of employees and labor costs, and the company’s destination-based sales in the Member State. 47 According to the European Commission, the advantages of a CCCBT with formula apportionment (and its logical conclusion, unitary taxation) are fewer distortions, less tax arbitrage (transfer pricing) and lower compliance costs. This is disputed by Alt- shuler and Grubert ( 2010 ), however, whose model indicates that separate accounting causes fewer distortions than FA under capital-based formulas, which induces capital to move to low tax jurisdictions. Further, sales-based formulas induce companies to change the mix of high margin and low margin sales in a market, and also the extent to which independent resellers in low-tax countries are used. In sum, the simula- tions which the authors perform indicate that FA has no clear advantage over separate accounting. The path to common base taxation would not be easy either. As pointed out by McLure and Weiner ( 2000 ) and Mintz and Weiner ( 2003 ), its introduction would give rise to serious policy sequencing and transition problems for EU Member States. Accounting conventions and institutional structures would have to be harmonized. All of these problems would be exacerbated by complex technical questions, such as defining a unitary business, choosing the appropriate apportionment formula (directly 46 By contrast, the authors also conclude that EU-wide coordination makes a joint ACE more, and a joint CBIT less efficient. Further, “[a] combination of ACE and CBIT is always welfare improving.” 47 The proposal is made attractive by combining it with a 10-year long 2.7% Allowance for Growth and Investment (AGI) (identical to an ACE) for new investments financed by new equity or profit retention, and 100% expensing of R&D costs (plus 50% for R&D expenses up to e20 million and 25% over e20 million). Obviously, the AGI and the R&D allowances are not integral to the CCCBT proposal. 123 Corporation taxes in the European Union: Slowly moving… 833 affecting the interstate allocation of revenue) and measuring the factors in the formula (precise definitions are crucial). 48 Harmonization of the tax base seems less urgent than coordination of the tax rates. Perhaps formulary apportionment should therefore be left for two or more Member States to deal with as is the case in the USA and Canada. Download 0.63 Mb. Do'stlaringiz bilan baham: |
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