Increased efficiency through consolidation and formula apportionment in the European Union?

Michael Devereux and Simon Loretz

No 812, Working Papers from Oxford University Centre for Business Taxation

Abstract: This paper assesses the efficiency properties of recent corporation tax reform proposals of the European Union to introduce international loss consolidation and formula apportionment. We extend the effective tax rate methodology of Devereux and Griffith (1999) to allow for a potential loss and use a large firm level data set to identify the distortions under the current system and following proposed tax reforms. We assess the efficiency of the overall tax system using the two concepts of capital export neutrality and market neutrality. Allowing international loss consolidation in the current system would signify a movement away from both notions of efficiency. A common consolidated tax base with formula apportionment system would move the system towards market neutrality, while improving capital export neutrality only little.

Keywords: Corporate Taxation; International Loss Consolidation; Apportionment Rules; Common Consolidated Tax Base (search for similar items in EconPapers)
JEL-codes: H25 H87 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-eec and nep-pbe
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Citations: View citations in EconPapers (14)

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