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Alison Schultz, Miroslav Palansky ■ Formulary apportionment in BEFIT: A path to fair corporate taxation

Tax justice reports
Tax justice reports

Formulary apportionment in BEFIT: A path to fair corporate taxation

This report estimates the revenue implications of implementing EU-wide unitary taxation, in conjunction with the 15 per cent minimum tax.

Corporate tax abuse through profit shifting deprives European societies of desperately needed funds, threatens the integrity of the common market, and compromises democratic principles. This report examines the most direct method to curb within-EU profit shifting: the EU-wide adoption of unitary taxation.

We use country by country reporting data from the OECD to estimate the revenue changes European member would face when redistributing taxable profits based on various formulas that measure economic activity – suggestions that could be included in the European Commission’s proposal for Business in Europe: Framework for Income Taxation (BEFIT).

Key findings

  • EU-wide unitary taxation with formulary apportionment would lead to additional tax revenues for the majority of the member states.
  • While some member states – in particular, well known tax havens Netherlands, Luxembourg, Ireland, and Malta – may incur losses from BEFIT, these can be substantially or entirely balanced out with the adoption of an effective national top-up tax, consistent with the EU’s plan to introduce a minimum corporate tax of 15 per cent in 2024.
  • A more equitable corporate tax system would not only restore fair competition, halt the race to the bottom and rebuild trust in democracy, but also has the potential to produce EU-wide tax benefits ranging from US$ 24.1 billion to US$ 26.8 billion in more tax revenue, when considered in isolation, or US$ 34.5 billion to US$ 35.4 billion when combined with the planned 15 per cent minimum tax.