The Global Formulary Apportionment (GFA) Model - Concept of Changed Structures in the Taxation of Multinational Enterprises

73 Pages Posted: 9 Mar 2021

Date Written: January 8, 2021


The Global Formulary Apportionment Model (GFA Model) applies to the tax accounting of the Global Taxable Income (GTI) of a Multinational Enterprise (MNE) and the Formulary Apportionment (FA) of this GTI between the member states of the model – here the G 20 nations. The resulting Global Taxable Income Share (GTIS) is taxed by the respective Member State, using its national corporate tax rate.

Thus, the GFA Model includes four elements:

First: The implementation of mandatory Global Tax Accounting Rules (GTAR) for all members of an affiliated group of firms that have a nexus to at least one of the Member States.

Second: The formerly separate tax balance sheets of each affiliate of the group will be consolidated to one group tax balance sheet.

Third: The group’s worldwide taxable income (GTI), as set forth in their consolidated tax balance sheet, is apportioned among the Member States in which the MNE has a Nexus by using a mandatory formula that is aligned to the income-producing economic activities of the group. The formula apportions the group’s GTI as follows: one-third of the GTI is apportioned to Member States where the group holds material property (Property Factor), one-third is apportioned to Member States in which the group has paid employee compensation (Payroll Factor), and the final third is apportioned to the Member States where the goods and services of the group are sold (Sales Factor).

Fourth: The per-country share of the GTI is multiplied by the corporate tax rate of the specific Member State. The minimum tax rate is 19%.

The system is mandatory for all legal forms of multinational firms (corporations, partnerships, entrepreneurs, freelancers) irrespective of the size of the firm, as long as the affiliate is economically active in a Member State to the point of forming a nexus.

The system will be binding on all Member States and overrides national tax accounting rules.
Worldwide, there is only one fiscal authority responsible for the realization of this model.

In order for this system to take effect, the potential Member States must sign a multilateral agreement which needs to be ratified by their national parliaments. This agreement will have priority over potential Double Tax Treaties. The ratified agreement will be binding upon the signature of states totaling more than 50% of the world economic output.

Keywords: Taxation of MNEs, new nexus, combined reporting, formulary apportionment, property-, payroll-, sales factor

JEL Classification: K34

Suggested Citation

Vorwold, Gerhard, The Global Formulary Apportionment (GFA) Model - Concept of Changed Structures in the Taxation of Multinational Enterprises (January 8, 2021). Available at SSRN: or

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