Residence-Based Formulary Apportionment: (In-)Feasibility and Implications

32 Pages Posted: 2 Oct 2018

See all articles by Wei Cui

Wei Cui

University of British Columbia (UBC), Faculty of Law

Date Written: February 1, 2018


I examine one way of taxing international corporate income that has not previously been studied, “residence-based formulary apportionment” or RBFA. I first offer a new taxonomy of different ways of taxing corporate income by reference to individual shareholders, and distinguish what I call the “shareholder attribution” approach from integration, pass-through, and other approaches. I then argue that although traditional international legal norms had led international tax design to avoid taxing foreign corporations “unconnected” with the taxing jurisdiction (e.g. foreign corporations earning only foreign income), these legal norms have gone through substantial transformations in recent years. The exercise of jurisdiction over foreign corporations has vastly expanded in the sphere of international taxation, as has the extent of mutual assistance in tax collection. Consequently, the choice between taxing foreign corporations and taxing shareholders should be made mainly on administrative (including enforceability) grounds other than international legal norms. Against this new landscape of international tax law, I compare the relative administrative advantages of two forms of tax design that implement exclusively-individual-shareholder-residence-based taxation of corporate income: the shareholder attribution approach, and RBFA. I conclude that while otherwise promising, RBFA is infeasible because it is incompatible with most corporations’ need to make pro rata distributions.

Keywords: international taxation, corporate taxation, destination-based taxation, formulary apportionment, shareholder taxation

JEL Classification: H25, K34

Suggested Citation

Cui, Wei, Residence-Based Formulary Apportionment: (In-)Feasibility and Implications (February 1, 2018). Tax Law Review, Vol. 71, No. 3, 2018, Available at SSRN:

Wei Cui (Contact Author)

University of British Columbia (UBC), Faculty of Law ( email )

1822 East Mall
Vancouver, BC V6T1Z1

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