Unitary taxation

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Formulary apportionment (UT) or total group taxation is an alternative to today standard international practice to taxation of multinational companies . In the EU Commission, UT is referred to as the Common Consolidated Corporate Income Tax Base ( GKKB ). Other common terms in the literature are formula allocation (English Formulary Apportionment ) and Country-by-Country Reporting ( cBCR ).

The introduction of unitary taxation has been discussed in the OECD and the EU for a long time , but has so far been rejected by most countries. The United States and Canada have used unitary taxation for decades to internally coordinate tax collection between states. Some non-governmental organizations such as the Tax Justice Network , Attac and WEED see the unitary taxation as a possibility to prevent the massive tax avoidance of multinational corporations and to enable developing countries to levy relevant corporate taxes in the first place .

Procedure

The unitary taxation is a form of taxation of multinational corporations in three steps. First of all, a group is viewed as a unit for which a total profit is determined. The group must disclose all activities of all its subsidiaries separately by country. This is also referred to as country-by-country reporting ( CbCR ). To do this, the group must show key data in its corporate report for all countries in which it and all subsidiaries operate or in which it sells goods. These key data contain at least the assets , the wage bill, the number of full-time jobs and the sales in the respective country. In order to take e-commerce into account, sales are always assigned to the location of the buyer. Special rules are provided for some industries. For example, means of transport such as ships or trucks are appropriately allocated proportionally to the locations between which they operate.

In the second step, the profit of the group is allocated to the individual countries according to these real activities using a formula. This is why one also speaks of formula allocation ( Formulary Apportionment ). In the simplest case, this can be done in such a way that, for example, one third of the profit is allocated to the country based on the assets (excluding intellectual property), one third due to the labor factor (half depending on the wage bill and the number of employees ) and one third based on sales become.

In the third step, the profit allocated to the respective country is then charged with the national tax rate .

advantages

With the tax procedures practiced internationally today, the procedure is that the profits of the individual business premises are calculated individually and then taxed nationally. In recent years this method has led to increasing levels of tax avoidance by multinational corporations by transferring their profits to tax havens through a variety of methods . The usual procedure for income shifting are manipulated transfer prices in transactions between group subsidiaries, credit financing with the result of high interest payments to tax havens, payment of royalties , patent fees , conclusion of insurance , derivative transactions , etc.

In contrast to this, the unitary taxation should show the profits where the real activities of the multinational companies take place, i.e. where production, research and sale take place. In this way it does not matter in which country the group's profits are reported, what internal transfer prices the group uses, how much interest or license fees are transferred from one country to the other, where the company invests, etc. In particular, the reporting of profits in Tax havens in which companies would otherwise not be economically active would no longer have any advantages.

Even developing countries, which hardly have the resources to set up an efficient tax administration, could access the same information as rich industrial countries in this way . The formula does not necessarily have to be coordinated. Each country can also use its own formula (see the situation in the USA below ). In the long term, however, coordination between the states should be sought. Taxation conflicts that arise would have to be resolved in double taxation agreements as before .

According to some tax experts, the unitary taxation could be introduced unilaterally by the EU or another group of states. This group would have to be so relevant that the corporations would usually not forego doing business there and are therefore prepared to present the international balance sheet according to the rules of unitary taxation. For example, it would be sufficient for the EU to oblige companies wishing to operate in their field to submit a corresponding balance sheet. Then every EU country could immediately use the published data as the basis for tax collection. And it would also be no problem for small developing countries to exclude companies that do not submit such a balance sheet from doing national business. Because there are always enough other companies that are approved for the EU.

history

USA and Canada

The unitary taxation has been used for decades in several US states and in Canada. In the USA this form of tax collection was introduced at the end of the 19th century. The decision-makers wanted to prevent corporations from disguising their profits through neighboring states. The Hollywood film industry in particular had begun to look for cheaper neighboring states.

The allocation of profits to the states works successfully, however the reporting obligation ends at the borders of the USA (water's edge). This limitation was made because other states were skeptical about the treatment of the corporations as a unit and were putting pressure on the USA. In the US, states use different formulas for allocating profits. The 25:25:50 formula ( investment,: labor: turnover ) is often used instead of the third formula , which evaluates the sales turnover twice.

OECD

There have already been several discussions about unitary taxation within the bodies of the OECD, but these have so far had no political consequences. Instead of the concept was to arm's length or Armlängenprinzips (ger .: arm's length Principle - ALP) set. The attempt is made to set uniform transfer prices for goods. In practice, however, the ALP has great problems and is easy to manipulate. For example, the value of a computer is difficult to determine. The transfer price of an iBook from Apple is three times higher than a much cheaper Asus - Laptop , both of which have apparently similar functions. It is even more difficult to determine transfer prices for intangible goods such as computer programs, television films, etc. In addition, it is difficult for tax administrations to adequately check transfer prices due to personnel restrictions and the complexity of the matter. This is all the more true for developing countries with limited resources.

European Union

The unitary taxation has been discussed in the EU since 2001. In 2011, the European Commission presented a first draft directive under the name Common Consolidated Corporate Income Tax Base ( CCCTB ). However, it only includes companies and their profits within the EU - similar to the unitary taxation in the USA. But he also proposes a uniform formula for the distribution of profits in the EU. While the Commission draft preferred the formula of thirds, the European Parliament wrote the 45:45:10 formula (investment: labor: turnover) in the draft in 2012 when it approved the directive.

The EU's draft CCCTB directive is primarily intended as a tax simplification model. There are therefore some essential aspects of unitary taxation missing and thus the decisive advantages: First, it should only be optional for the corporations. Alternatively, you should be able to decide whether you want to be taxed according to the CCCTB or the previous national methods. Then the CCCTB method would not be suitable for eliminating tax avoidance. Furthermore, it does not take into account the profits of corporations outside the EU and thus not those that are transferred from the EU to overseas tax havens. And finally, it is therefore not suitable as an instrument for third countries such as the developing countries.

Nonetheless, advocates of unitary taxation consider the EU's extensive draft CCCTB directive, which comprises 170 pages, to be a good technical basis, which for the first time contains detailed proposals on how to deal with the complex problems of the allocation of work, assets and sales in different industries .

criticism

Critics of the unitary taxation point out that it also offers manipulation possibilities: Problems are, for example, the assignment of temporary workers , the evaluation of investments and the assignment of subsidiaries to multinational corporations. At the same time, there are fear of opening gates for tax avoidance strategies by corporations or at least recourse to current procedures within the framework of the ALP would be necessary. The unitary taxation also enables a cross-border loss calculation , which is not permitted under current German tax law , in order to avoid tax avoidance. Another problem is that double taxation treaties would have to be renegotiated around the world as long as states do not agree on a common formula.

See also

literature

Web links

Individual evidence

  1. ^ "Sol Picciotto (tax justice network), Towards Unitary Taxation of Transnational Corporations" December 9, 2012, http://www.taxjustice.net/cms/upload/pdf/Towards_Unitary_Taxation_1-1.pdf .
  2. ↑ "Herzig 2012" Herzig, Norbert, Common Consolidated Corporate Tax Assessment Basis (GKKB), Center for European Economic Law, Bonn, 2012, Archived Copy ( Memento of the original from October 4, 2013 in the Internet Archive ) Info: The archive link was automatically inserted and not yet checked. Please check the original and archive link according to the instructions and then remove this notice. (Accessed: August 27, 2013) @1@ 2Template: Webachiv / IABot / www.zew.uni-bonn.de
  3. ^ "Spencer 2013" Spencer, David, Unitary taxation with combined reporting: The TP solution ?, International Tax Review, May 2013, pp. 2–5, http://www.internationaltaxreview.com/Article/3196791/Unitary-taxation -with-combined-reporting-The-TP-solution.html (accessed: August 24, 2013)