Strategic consolidation under formula apportionment

Resource Information

The work Strategic consolidation under formula apportionment represents a distinct intellectual or artistic creation found in International Bureau of Fiscal Documentation. This resource is a combination of several types including: Work, Language Material, Continuing Resources.

Label

Strategic consolidation under formula apportionment

Creator

• Buettner, T
• Riedel, N
• Runkel, M

Subject

• corporate income tax
• formulary apportionment
• group treatment

Language

eng

Summary

• This paper argues thet profit-shifting activities exist for multi-jurisdictional enterprises (MJEs) unde a tax sustem of consolidation and formula apportionment (FA). A theoretical model discusses how a MJE can exploit strategically its impact on the definition of the consolidated group. the analysis shows that the MJE will not consolidate if intra-group tax-rate-differences - and thereby potential gains from profit shifting - are large. The resluts show that, evaluated at the sample mean, ana increase in the tas-rate variance among a MJEs affiliates by one standard deviation reduces the numer of consolidated affiliates by percent
• This paper argues that profit-shifting activities exist for multi-jurisdictional enterprises (MJEs) under a tax system of consolidation and formula apportionment (FA). A theoretical model discusses how a MJE can exploit strategically its impact on the definition of the consolidated group. The analysis shows that the MJE will not consolidate if intra-group tax-rate differences - and thereby potential gains from profi t shifting - are large. The authors test this prediction using confidential firm-level tax-return data for the local business tax in Germany. The identification strategy exploits a quasi-experiment derived from a major company tax reform in 2001 that significantly reduced the costs associated with separating out individual affiliates. The results show that, evaluated at the sample mean, an increase in the tax-rate variance among a MJE's affiliates by one standard deviation reduces the number of consolidated affiliates by 20 percent

Citation source

In: National tax journal. - Washington. - Vol. 64 (2011),

Geographic coverage

International

Language note

English