Tax enforcement and tax havens under formula apportionment
Becker J, Fuest C
In this paper, we consider optimal tax enforcement policy in the presence of profit shifting toward tax havens. We show that, under separate accounting, tax enforcement levels may be too high due to negative fiscal externalities. In contrast, under formula apportionment, tax enforcement is likely to be too low due to positive externalities of tax enforcement. Our results challenge recent contributions arguing that, under formula apportionment, there is a tendency toward inefficiently high levels of (effective) tax rates.
Corporate taxation Foreign direct investment corporate-income european-union competition taxation multinationals evasion reform firms