Taxing the residual profit of multinational enterprises : a critique of formulaic apportionment and a proposal

Wolfram F. Richter

According to plans put forward by the OECD/G20 Inclusive Framework on BEPS, a share of residual profit earned by eligible MNEs is to be taxed by market jurisdictions. For this purpose, revenue-based formulaic apportionment of residual profit is proposed. This note argues against the use of a rule requiring the multilateral assessment of MNEs’ worldwide profit and recommends an alternative method of sharing taxing rights with market jurisdictions. The proposed method relies on unilateral profit splitting and is suggested by the application of Shapley value theory to the fair and equitable division of taxing rights between cooperating jurisdictions.

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Year of publication:	2021
Authors:	Richter, Wolfram F.
Publisher:	Munich, Germany : ifo Institute
Subject:	BEPS Project \| Pillar One \| formulaic apportionment \| profit splitting \| cooperative game theory \| Multinationales Unternehmen \| Transnational corporation \| Konzernbesteuerung \| Group taxation \| Körperschaftsteuer \| Corporate income tax \| Unternehmensbesteuerung \| Corporate taxation \| Verrechnungspreis \| Transfer pricing \| Spieltheorie \| Game theory \| Internationales Steuerrecht \| International tax law \| Steuererhebungsverfahren \| Taxation procedure \| Steuerwettbewerb \| Tax competition \| Kooperatives Spiel \| Cooperative game \| Gewinn \| Profit \| Doppelbesteuerung \| Double taxation \| Außensteuerrecht \| Cross-border taxation \| Gewinnverlagerung \| Income shifting