The EU Apportionment Formula: Insights from a Business Case

The European Commission has the intention to establish a Common Consolidated Corporate Tax Base (CCCTB) in order to increase the efficiency, effectiveness, simplicity and transparency of the European company tax system. Using firm level data form a Belgian listed multinational, this case study investigates how several designs for the CCCTB apportionment formula could affect the allocation of the consolidated tax base among different group entities. The design of the apportionment formula is relevant in the light of member states' concern for protecting their tax revenues, as well as for the multinational companies' tax minimizing possibilities. Simulating different apportionment formulas, the results show that including more factors and using equal weights distributes the common tax base more equally, which moreover could reduce the incentive to shift factors form high tax countries to low tax countries. The results also indicate that simplifying the factor definitions as proposed by the Commission, leads to rather minor changes in the allocation. Using unpublished archival data, this case study allows to investigate the consequences of different apportionment formulas in detail, which contributes to the current discussion on corporate group tax harmonization within the EU.