A European formula for global tax reform

Policy Study

Global tax reform is a politically fraught process, not only in the EU but also globally. The current corporate tax system, which assumes that each entity within a multinational group is a separate firm, creates significant imbalances among EU member states as well as among developing countries.

Political momentum has built up to replace the current regime with a system known as formula apportionment, which treats the profits of multinationals in a unified way and then allocates those profits to jurisdictions on the basis of a formula.

On top of this, the introduction of a global minimum tax rate to curb the so-called race to the bottom is also under discussion.

This Policy Study by Robert Sweeney, published in partnership with the Friedrich Ebert Stiftung and TASC, examines the opportunity for the reform of international corporate taxation by implementing a formula apportionment approach to taxing rights.

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The Study uses country-by-country reporting data (CbC data) from the OECD. Its goal is to explore the path the EU might pursue in light of recently agreed reforms, but it also considers how such reforms would affect developing countries.

It pays particular attention to the implementation of the European Commission’s Common Consolidated Corporate Tax Base (CCCTB) proposal globally, which is a specific type of formula apportionment. A version of it is likely to be a central part of the EU’s tax reform agenda, which is expected next year.

The CCCTB with a minimum tax rate of 25% would generate significant gains compared to a 15% one, and most EU countries would then gain revenue.

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