## An Assessment of Global Formula Apportionment

_IMF Working Papers, October 11, 2019_

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## Bibliographic details
- Authors: Ruud A. de Mooij, Li Liu, Dinar Prihardini
- Published: October 11, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513516257.001

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### Overview
- Authors: Ruud A. de Mooij, Li Liu, Dinar Prihardini
- Publication date: October 11, 2019
- Paper type: IMF Working Papers
- Core topic: Formula apportionment as an alternative to the current international tax regime based on separate accounting for attributing taxable profits of multinationals across jurisdictions.
- Pages: 41
- Volume: 2019
- Issue: 213
- Series: Working Paper No. 2019/213
- DOI: https://doi.org/10.5089/9781513516257.001
- Stock No: WPIEA2019213
- ISBN: 9781513516257
- ISSN: 1018-5941

### Analytical approach and datasets
- Reviews existing literature and discusses experiences in selective federal states to evaluate economic properties of formula apportionment relative to separate accounting.
- Analysis exploits different datasets to assess direct revenue implications for individual countries under alternative apportionment formulas.
- Keywords and subject coverage include: Corporate income tax, Employment, Formula apportionment, Labor, National accounts, Personal income, Revenue administration, Taxes, company group, company transaction, data from ORBIS, enterprise tax, Europe, Global, International corporate taxation, Multinationals, non-loss-making company, parent company, revenue effect, tax competition, tax enforcement, taxable income, WP.

### Key findings
- Formula apportionment eliminates profit shifting within multinational groups.
- Formula apportionment introduces new distortions and affects tax competition.
- Distributional effects across countries are large, reflecting major discrepancies between:
  - where profits are currently attributed, and
  - where factors of production are located or sales take place.
- The largest revenue losses appear in investment hubs (defined as countries with a disproportionate ratio of foreign direct investment to GDP).
- Several large advanced countries are likely to gain under formula apportionment.
- Developing countries:
  - Gain most likely if employment receives a large weight in the formula.
  - Tend to benefit, on average, from a formula based on sales by destination.

### Policy implications and considerations
- Trade-offs:
  - Benefit: elimination of within-group profit shifting.
  - Cost: emergence of new distortions and changed dynamics of tax competition.
- Design choices matter materially for revenue distribution:
  - Weighting employment heavily favors developing countries.
  - Weighting sales by destination tends to benefit developing countries on average.
- Revenue implications are country-specific and depend on the chosen formula and underlying factor distributions (production location, employment, sales, foreign direct investment patterns).

*An Assessment of Global Formula Apportionment — Ruud A. de Mooij, Li Liu, Dinar Prihardini; IMF Working Paper No. 2019/213; October 11, 2019; Pages: 41; DOI: https://doi.org/10.5089/9781513516257.001*

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_Source: https://www.imf.org/en/publications/wp/issues/2019/10/11/an-assessment-of-global-formula-apportionment-48718_