Formula apportionment: Is it better than the current system and are there better alternatives?

Rosanne Altshuler, Harry Grubert

Research output: Contribution to journalArticle

15 Scopus citations

Abstract

This analysis of formula apportionment compared to the current U.S. system recognizes that income shifting has two main sources, excess returns attributable to intangibles and debt, and that a major goal of income division systems is preserving neutrality between arm's length and related party transactions. A model demonstrates that separate accounts (SA) and formula apportionment (FA) distortbehavior along different margins. Simulations indicate that FA has no clear advantage over SA. Static estimates of U.S. tax revenues under FA suggest potentially large increases, but simulations show that revenue under FA and SA is similar once behavioral responses are taken into account.

Original languageEnglish (US)
Pages (from-to)1145-1184
Number of pages40
JournalNational Tax Journal
Volume63
Issue number4
DOIs
StatePublished - Dec 2010

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Keywords

  • Formula apportionment
  • Income shifting
  • International taxation
  • Transfer pricing

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