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An Assessment of Global Formula Apportionment
Author:
Ruud A. de Mooij
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Ms. Li Liu
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, and
Dinar Prihardininull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 213
Language:
English
Publication Date:
11 Oct 2019
DOI:
https://doi.org/10.5089/9781513516257.001
ISBN:
9781513516257
ISSN:
1018-5941
Pages:
41
Keywords:
WP; parent company; taxable income; company group; company transaction; enterprise tax.; non-loss-making company; International corporate taxation; Multinationals; Formula apportionment; enterprise tax; tax competition; data from ORBIS; tax enforcement; revenue effect; Corporate income tax; Personal income; Employment; Global; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Formula apportionment as a way to attribute taxable profits of multinationals across jurisdictions is receiving increased attention. This paper reviews existing literature and discusses experiences in selective federal states to evaluate the economic properties of formula apportionment relative to the current international tax regime that is based on separate accounting. It highlights major advantages, such as the elimination of profit shifting within multinational groups; and it discusses new distortions and the impact on tax competition. The analysis exploits different datasets to assess the direct revenue implications for individual countries under alternative formulas. The distributional effects across countries are found to be large, reflecting major discrepancies between where profits are currently attributed and where factors of production are located or sales take place. The largest losses appear in investment hubs (i.e. countries with a disproportionate ratio of foreign direct investment to GDP), while several large advanced countries are likely to gain. Developing countries gain most likely if employment receives a large weight in the formula; they also tend to benefit, on average, from a formula based on sales by destination.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2019: Issue 213