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Corporate Taxation in the European Union: The Role of Intangibles in the Formulary Apportionment

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  • Mlčúchová Markéta

    (Mendel University in Brno, Faculty of Business and Economics, Zemědělská 1, 613 00 Brno, Czech Republic)

Abstract

This paper seeks to contribute to the current debate on EU-wide corporate taxation, steered by the impending Proposal by the European Commission on a new framework for the taxation of income of businesses in Europe. The objective of this paper is to verify whether the inclusion of intangible assets enhances the ability of the current proposals for Formulary Apportionment to explain variability in profitability. The research question addressed is “What is the explanatory power of the Formulary Apportionment, for factors such as tangible assets, intangible assets, labour and sales by destination, to describe the variability in the profitability of companies active within the EU internal market?”. The paper employs regression analysis of cross-sectional microeconomic data to analyse the explanatory power of the Formulary Apportionment. The research reveals that the inclusion of intangible assets fails to enhance the explanatory power and that factoring in intangible assets does not appear to have a statistically significant effect in the model. The best-performing model, without the inclusion of intangible assets, explained 22.6 % of the variability in the profitability of companies active within the EU internal market.

Suggested Citation

  • Mlčúchová Markéta, 2023. "Corporate Taxation in the European Union: The Role of Intangibles in the Formulary Apportionment," Review of Economic Perspectives, Sciendo, vol. 23(3), pages 181-201, September.
    • Handle: RePEc:vrs:reoecp:v:23:y:2023:i:3:p:181-201:n:1
    DOI: 10.2478/revecp-2023-0006
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    References listed on IDEAS

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    1. Clemens Fuest, 2008. "The European Commission's proposal for a common consolidated corporate tax base," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(4), pages 720-739, winter.
    2. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-1373, November.
    3. Michael P. Devereux & Simon Loretz, 2008. "The Effects of EU Formula Apportionment on Corporate Tax Revenues," Fiscal Studies, Institute for Fiscal Studies, vol. 29(1), pages 1-33, March.
    4. Liudmila V. Polezharova & Aleksandra M. Krasnobaeva, 2020. "E-Commerce Taxation in Russia: Problems and Approaches," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 6(2), pages 125-143.
    5. Thomas Eichner & Marco Runkel, 2008. "Why the European Union Should Adopt Formula Apportionment with a Sales Factor," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 567-589, September.
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    More about this item

    Keywords

    formulary apportionment; common consolidated corporate tax base; BEFIT; intangible assets;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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