Reforming the Taxation of Multijurisdictional Enterprises in Europe, a Tentative Appraisal

49 Pages Posted: 5 Oct 2006

See all articles by Marcel Gerard

Marcel Gerard

Facultes Universitaires Catholiques de Mons (FUCAM); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 2006

Abstract

In 2001, the European Commission proposed replacing the current system of taxation of multinational companies by the taxation of a consolidated base, computed at the level of all the European entities of a multijurisdictional enterprise, and then distributed for taxation purposes between the various jurisdictions in which these entities operate, according to pre-established criteria. In this paper, we propose a tentative appraisal of that reform based on a case study and an analytical exercise. We especially focus on two related issues, the choice of the formula and the composition of the consolidating area - either the entire EU or some Member States within an Enhanced Cooperation Agreement, as well as on their impact on the size and interjurisdictional distribution of tax revenue and social welfare, and on the intensity of tax competition. Our tentative policy conclusion is that this paper supports the reform provided that (1) the formula puts emphasis on criteria that the firm may not too easily manipulate, (2) the activities of the multijurisdictional enterprise are mobile enough, (3) the consolidation is made compulsory within the consolidating area, and (4) the consolidating area protects its capacity to actually levy tax by adopting a crediting system vis-à-vis the rest of the world.

Keywords: multinational enterprises, multinational companies, multijurisdictional enterprises, European taxation, tax consolidation, tax competition

JEL Classification: H32, H73, H87

Suggested Citation

Gerard, Marcel, Reforming the Taxation of Multijurisdictional Enterprises in Europe, a Tentative Appraisal (September 2006). CESifo Working Paper Series No. 1795. Available at SSRN: https://ssrn.com/abstract=935009

Marcel Gerard (Contact Author)

Facultes Universitaires Catholiques de Mons (FUCAM) ( email )

Chaussee de Binche, 151
Mons 7000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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