An Assessment of Global Formula Apportionment

By Ruud A. de Mooij, Li Liu, Dinar Prihardini

October 11, 2019

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Ruud A. de Mooij, Li Liu, and Dinar Prihardini. An Assessment of Global Formula Apportionment, (USA: International Monetary Fund, 2019) accessed December 21, 2024

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.

Summary

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.

Subject: Corporate income tax, Employment, Formula apportionment, Labor, National accounts, Personal income, Revenue administration, Taxes

Keywords: Company group, Company transaction, Corporate income tax, Data from ORBIS, Employment, Enterprise tax, Enterprise tax., Europe, Formula apportionment, Global, International corporate taxation, Multinationals, Non-loss-making company, Parent company, Personal income, Revenue effect, Tax competition, Tax enforcement, Taxable income, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/213
Stock No:

WPIEA2019213
ISBN:

9781513516257
ISSN:

1018-5941

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