International Distribution of the Corporate Tax Base: Implications of Different Apportionment Factors Under Unitary Taxation

ICTD Working Paper 27

38 Pages Posted: 1 Apr 2015

See all articles by Alex Cobham

Alex Cobham

Center for Global Development

Simon Loretz

Austrian Institute of Economic Research (WIFO); Oxford University Centre for Business Taxation; University of Innsbruck

Date Written: November 3, 2014

Abstract

Under the current system of separate accounting, tax-motivated international profit shifting results in misalignment of profits and real economic activity. While the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting initiative aims to measure and curtail this, critics claim serious progress is only possible with greater emphasis on formulary apportionment methods (Picciotto 2013), or other methods outside the present international tax architecture (IMF 2014). In this paper we use the leading global database of company balance sheets to compare the distribution of profit and potential apportionment factors. Although data coverage is problematic for developing countries, we find that apportioning profit according to measures of actual economic activity would result in a major redistribution of the tax base at the expense of a particular group of jurisdictions, and in most cases towards the lower-income countries in the sample. International loss consolidation facilitated by a global switch to unitary taxation would reduce the overall tax base by around 12 percent.

Keywords: corporate tax reform; multinational taxation; formula apportionment

Suggested Citation

Cobham, Alex and Loretz, Simon, International Distribution of the Corporate Tax Base: Implications of Different Apportionment Factors Under Unitary Taxation (November 3, 2014). ICTD Working Paper 27, Available at SSRN: https://ssrn.com/abstract=2587839 or http://dx.doi.org/10.2139/ssrn.2587839

Alex Cobham (Contact Author)

Center for Global Development ( email )

2055 L St. NW
5th floor
Washington, DC 20036
United States

Simon Loretz

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Oxford University Centre for Business Taxation ( email )

Park End Street
Oxford, Oxfordshire OX1 1HP
United Kingdom

University of Innsbruck ( email )

Innsbruck, A-6020
Austria

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