Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/102675
Authors: 
Kiesewetter, Dirk
Steigenberger, Tobias
Stier, Matthias
Year of Publication: 
2014
Series/Report no.: 
Arqus-Diskussionsbeiträge zur quantitativen Steuerlehre 175
Abstract: 
The European Commission has been supporting a transition from a system of separate accounting to a system of formula apportionment. In 2011, it presented a proposal for a council directive on a Common Consolidated Corporate Tax Base (CCCTB). Formula apportionment is often considered more resistant to profit shifting and assumed to reduce compliance costs. We use a dynamic model of tax accounting based on neoclassical investment theory and effective tax rates to determine whether, and to what extent, formula apportionment mitigates the efficiency of typical profit-shifting measures. We focus on the roles of transfer pricing and intragroup debt financing (through loans and leases) under both separate accounting and formula apportionment. Our results show that instead of eliminating tax planning strategies, the proposed system will simply induce a shift from manipulating reported profits to influencing the apportionment key. Inside the European Union, the CCCTB may be able to render thin capitalisation rules and transfer pricing documentation redundant. However, formula apportionment invites new forms of tax planning involving manipulating the book value of assets rather than profit shifting.
Subjects: 
Effective Tax Rate
CCCTB
Formula Apportionment
Tax Planning
Profit Shifting
Debt Financing
Leasing
JEL: 
H20
F21
F23
D21
Document Type: 
Working Paper

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