Arguments for implementing formulary apportionment in the European Union

Using recently published country-by-country reporting data released by the United States Internal Revenue Service, we assess United States multinationals' activity in the single market, aiming to contribute with data-based evidence to the ongoing political debate about the potential changes in the European corporate tax system. Our findings show evidence of artificial profit shifting across member States under the current method to allocate profits of multinational enterprises, with the Netherlands, Luxembourg and Ireland appearing to be the countries showing a higher degree of complicity with these activities. Such actions challenge fair international taxation in the European Union, distorting European internal competition and hampering tax revenue collection. Although it may not be (yet) the time for a worldwide unitary taxation approach, the analysis highlights the urgency for the European Union to adopt a formulary apportionment approach, overhauling a century-old set of global tax rules based on the separate entity approach. Keywords : country-by-country reporting, European Union, formulary apportionment, tax havens, United States multinationals enterprises JEL classification codes : D22, F23, F60, H25, H26
1. Introduction This study adds to the growing research on the activity of multinational enterprises (MNEs) in the European single market (Garcia-Bernardo et al., 2021 and 2022). Starting from the [...]