Towards A Benefit-Based Market Neutral Formulary Apportionment System in the EU: Reflections for the BEFIT Proposal

NUMMER 15, 25 NOVEMBER 2022 / SDU MBB BELASTING BESCHOUWINGE

Posted: 23 Dec 2022

See all articles by Shu-Chien Chen

Shu-Chien Chen

Erasmus University Rotterdam (EUR), Erasmus School of Law

Date Written: November 22, 2022

Abstract

The European Union’s latest tax reform project, ‘Business in Europe: Framework for Income Taxation’ (BEFIT), is a formulary apportionment regime. This article explains how the EU should design its formulary apportionment system that is fair for the EU Member States. This article argues that the normative framework should combine the benefit principle and the concept of Market Neutrality. This Benefit-Based Market Neutrality framework can cover multiple policies pursued by BEFIT and respect the diversity of different EU Member States. Moreover, by comparing the experiences in the US state taxation with the EU’s preparation work on the Common Consolidated Corporate Tax Base (CCCTB), the article concludes that the EU should implement a formula consisting of three equally weighted factors, the sales factor, the asset factor and the\ labor factor. After clarifying prevalent myths, this article negates the single sales factor formula option and embraces Intellectual property rights in the asset factor.

Keywords: EU, BEFIT, Formulary Apportionment

JEL Classification: K34

Suggested Citation

Chen, Shu-Chien, Towards A Benefit-Based Market Neutral Formulary Apportionment System in the EU: Reflections for the BEFIT Proposal (November 22, 2022). NUMMER 15, 25 NOVEMBER 2022 / SDU MBB BELASTING BESCHOUWINGE, Available at SSRN: https://ssrn.com/abstract=4284728

Shu-Chien Chen (Contact Author)

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

Netherlands

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