Separate Accounting or Unitary Apportionment?

Transcription

1 Reihe: Steuer, Wirtschaft und Recht Band 307 Herausgegeben von vbp StB Prof. Dr. Johannes Georg Bischoff, Wuppertal, Dr. Alfred Kellermann, Vorsitzender Richter (a. D.) am BGH, Karlsruhe, Prof, (em.) Dr. Gunter Sieben, Koln, und WP StB Prof. Dr. Norbert Herzig, Koln Christoph Sommer Separate Accounting or Unitary Apportionment? The Fairy Tale of Arm's Length Pricing and General Equilibrium Analysis of Multinational Enterprise Behavior under the Formulary Taxation Alternative A

2 Table of Contents Summary of Contents VII Table of Contents IX List of Figures XIII List of Abbreviations XV List of Notations XVII 1 Introduction 1 2 Setting the Stage for Analyzing Separate Accounting and Unitary Apportionment Introduction to the Fundamentals of the Analysis Theory of the Multinational Enterprise The Corporate Income Tax as Withholding Device Decision Criteria of the Analysis Feasibility of Taxation Tax Equity Taxpayer Equity The Economic Concept of Income Taxpayer Equity in the Presence of Cross-Border Income Flows Inter-Jurisdictional Equity Efficiency and Decision-Neutrality of Taxation Relation of Efficiency and Decision-Neutrality Locational Neutrality Unitary View of the Multinational Enterprise for Tax Purposes Taxing International Income Only Once Summary to Decision Criteria of the Analysis 50 3 Separate Accounting: What It Is About and Why It Fails as a Taxation Method for Multinational Enterprises Introduction to Separate Accounting and its Foundation Stones The Specifics of Separate Accounting The Authoritative Statement of the Arm's Length Principle The Characteristics of the Arm's Length Principle Independence of Business Partners 59 IX

3 X Comparability of Conditions Transaction-Based Approach The Internationally Acknowledged Transfer Pricing Methods and Cost Contribution Arrangements Overview The Standard Transfer Pricing Methods The Comparable Uncontrolled Price Method The Resale Price Method The Cost Plus Method The Profit-Based Transfer Pricing Methods The Transactional Profit Split Method 71 nparal Transactional Net Margin Method and Comparable Profits Method h The Transactional Net Margin Method The Comparable Profits Method Comparison of Both Methods Cost Contribution Arrangements Critique of Separate Accounting Theoretical Shortcomings The-Neglect of the MNE as a Unitary Business MNE's Residual Income and the Continuum Price Problem Arm's Length Pricing's Inherent Failure to Properly Account for Economic Rents The Arm's Length Principle and the Taxation of Excess Profits: Where, if at all? Arm's Length Pricing and the Continuum Price Problem Arm's Length Pricing's Fundamental Paradox and Its Consequences The Omission of the Managerial Role of Internal Transfer Pricing Partial Equilibrium Analysis of Tax-Induced Distortions Under Separate Accounting Introduction Model Assumptions World with No Taxes as Benchmark Distortions by Separate Accounting and Arm's Length Pricing 99

4 Conclusion The Pros and Cons of Separate Accounting in Tax Practice Political and Practical Advantages Tax Compliance and Enforcement Problems Struggles in Recordkeeping for MNEs The Non-Observability of Identifiable Intra-MNE Transactions The Lack of Reasonably Close Comparables The Incapability of Addressing the Dual Tax Problem The Enhancement of Information Exchange as Solution to Practical Problems? Ill 3.4 Summary Appraisal of Separate Accounting Uritary Apportionment: Designing a Global Formulary Taxation System and Analyzing Potential Firm Behavior within a General Equilibrium Framework Introduction to Unitary Apportionment and its Foundation Stones Issues in Implementing a Global Unitary Apportionment System The Taxable Unit The Tax Base: Apportionable Income and Accounting Rules Defining the Issues at Hand Apportionable Income Tax Accounting Rules The Formula Introduction to Designing the Formula Choosing the Apportionment Factors Measuring the Apportionment Factors Apportionment Factor Definitions and Locations Introduction Property Factor Payroll Factor Sales Factor Choosing Factor Weights Specialized Formulae for Specific Industries Economic Effects and Distortions Caused by Using a Formula 142 XI

5 4.2.4 Jurisdictional Threshold Summarizing the Proposal for a Global Unitary System General Equilibrium Investigation of Firm Behavior under the Proposed Unitary Apportionment System Introduction Model Assumptions Model Equations Case 1: Capital Perfectly Mobile, Labor Perfectly Immobile Quantitative Model Results Economic Interpretation of Quantitative Model Results Tax Effects: An Overview? Tax Effects: Factor-Specific Details Apportionment Factor Payroll / Apportionment Factors Property and Sales Case 2: Both Capital and Labor Perfectly Mobile Quantitative Model Results Economic Interpretation of Quantitative Model Results Tax Effects: An Overview Tax Effects: Factor-Specific Details Apportionment Factors Payroll and Property Apportionment Factor Sales Main Results of the General Equilibrium Analysis Political Feasibility of Worldwide Adoption of the Proposed System Summary Appraisal of Unitary Apportionment Conclusion 193 Appendices 201 Mathematical Appendix I: Partial Equilibrium Model 203 Mathematical Appendix II: General Equilibrium Model 205 Bibliography 217 Table of Cases 261 Reports, Legislation and Regulations 263 XII