Corporate taxation in the European Union : the role of intangibles in the formulary apportionment

This paper seeks to contribute to the current debate on EU-wide corporate taxation, steered by the impending Proposal by the European Commission on a new framework for the taxation of income of businesses in Europe. The objective of this paper is to verify whether the inclusion of intangible assets enhances the ability of the current proposals for Formulary Apportionment to explain variability in profitability. The research question addressed is "What is the explanatory power of the Formulary Apportionment, for factors such as tangible assets, intangible assets, labour and sales by destination, to describe the variability in the profitability of companies active within the EU internal market?". The paper employs regression analysis of cross-sectional microeconomic data to analyse the explanatory power of the Formulary Apportionment. The research reveals that the inclusion of intangible assets fails to enhance the explanatory power and that factoring in intangible assets does not appear to have a statistically significant effect in the model. The best-performing model, without the inclusion of intangible assets, explained 22.6 % of the variability in the profitability of companies active within the EU internal market.