Tracing Capital: Toward a Neutral Specialized Formula for Financial Institutions under Common Consolidated Corporate Tax Base (CCCTB)

12 Bocconi Legal Papers 71 (2018)

36 Pages Posted: 8 Apr 2019

See all articles by Shu-Chien Chen

Shu-Chien Chen

Erasmus University Rotterdam (EUR), Erasmus School of Law; University of Amsterdam, Faculty of Law, Students

Date Written: November 15, 2018

Abstract

Common Consolidated Corporate Tax Base (CCCTB) is an ambitious tax reform project under EU law, to harmonize corporate income tax base on a group basis at the EU level, and use a pre-determined formulary apportionment mechanism (i.e. a formula consisting the sales factor, the asset factor and the labour factor) to allocate taxing rights between EU Member States. The standard formula is based on the business model of the manufacturing industry and is not completely suitable for the financial industry. The current CCCTB Proposal has a special formula apportioning pan-EU taxable income a multinational taxpayer in the financial industry but there are some problems in it. This paper compares the financial industry formula in the USA state taxation and argues that, the role of the monetary capital is the key criterion to design the financial industry formula under the CCCTB. Based on this rationale, the financial industry formula should include a special rule for the asset factor to include the financial assets and a special rule for the sales factor. Such formula would be suitable not only to multinational groups consisting of pure financial institutions but also to multinational groups consisting of both financial and non-financial institutions.

Keywords: Common Consolidated Corporate Tax Base, Multistate Tax Compact, Financial Institutions, Formulary Apportionment, Financial Institutions, Money-Center States, Market States, European Union, United States of America

Suggested Citation

Chen, Shu-Chien, Tracing Capital: Toward a Neutral Specialized Formula for Financial Institutions under Common Consolidated Corporate Tax Base (CCCTB) (November 15, 2018). 12 Bocconi Legal Papers 71 (2018), Available at SSRN: https://ssrn.com/abstract=3342125 or http://dx.doi.org/10.2139/ssrn.3342125

Shu-Chien Chen (Contact Author)

Erasmus University Rotterdam (EUR), Erasmus School of Law ( email )

Netherlands

University of Amsterdam, Faculty of Law, Students ( email )

Amsterdam
Netherlands

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