The European Commission's Report on Company Income Taxation: What the EU Can Learn from the Experience of the US States

Abstract

The European Union Commission has proposed using consolidated base taxation and formulary apportionment to tax the EU-source income of multinational companies. This paper examines US state experience with a similar approach. Despite some positive lessons, especially the need to consolidate income of affiliated companies, lessons are mostly negative, especially regarding the choice of apportionment formula, the use of economic criteria to define the group whose income is to be consolidated, and complexity caused by lack of uniformity. US experience says nothing about using value added to apportion income-an approach that is conceptually attractive, but subject to transfer pricing problems.

Can formula apportionment really prevent multinational enterprises from profit shifting? The role of asset valuation, intragroup debt, and leases

“…We think that a substantial number of national tax allowances and incentives are highly likely to survive the harmonisation of the tax base. The EC unintentionally confirms our view by noting that the 22 See Hellerstein and McLure (2004), p. 214, Lodin and Gammie (2001), p. 49 and Sørensen (2004 Because tax decisions are subject to the unanimity requirement, concessions to Member States in terms of allowed alternative treatments are a realistic assumption.…”

The Impact of the CCCTB Introduction on the Distribution of the Group Tax Bases Across the EU: The Study for the Czech Republic

“…The possible methods of sharing the tax base, mainly the formulary apportionment in the conditions of the EU has been discussed by Hellerstein and McLure (2004), who emphasize that the EU should learn from the US and Canadian experience with formulary apportionment. Also Weiner (2005) and Mintz (2004) stipulate several problems of US and Canadian experience that could be useful for EU corporate taxation.…”

“…Another authors as Lodin and Gammie (2001) were focusing on value added based apportionment. Also Hellerstein and McLure (2004) were analysing value added approach in their study.…”

Proposals for a European Corporate Taxation and their Influence on Multinationals' Tax Planning

“…Formula apportionment (FA) became a part of US tax law in the early 20th century (Ford, 1930;Hellerstein, 1968;Hellerstein and McLure, 2004), so several academically and practically orientated papers particularly in US literature have been written and contributed to the general debate since the 1960s (e.g. Gordon and Wilson, 1986;Musgrave, 1984;Hellerstein, 1968).…”

“…Based on these experiences many recommendations for the allocation factor have been 1 Cf. European Commission, 2006a. made, for example by Hellerstein/McLure (2004) for implementing a US-style enterprise tax law system in the EU. US tax law includes the factors payroll, property and sales, whereas…”