Formulary apportionment is an intensively debated mechanism for allocating tax base within multinational groups. Systems under which the formula is identical in all jurisdictions and systems under which jurisdictions can determine the weights on the formula factors individually can be observed....

We examine which tax allocation system leads to more severe distortions with respect to locational investment decisions. We consider separate accounting (SA) and formula apportionment (FA). The effects of both systems have been hotly debated in Europe in the past years. The reason is that the EU...