Company Tax Reform with a Water's Edge

Riedel, Nadine and Runkel, Marco (2007) Company Tax Reform with a Water's Edge. Journal of Public Economics, 91 (7-8). pp. 1533-1554.


This paper analyzes the effects of switching from a corporate tax system based on separate accounting (SA) towards a system in which two countries form a formula apportionment (FA) union while a third country sticks to SA (water's edge). Our analysis draws a positive picture on the water's edge regulation. In the short-run, for given tax rates, the transition from SA to FA is likely to reduce profit shifting from the FA union to non-FA tax havens. In a long-run tax competition analysis, we find a negative water's edge externality under FA that tends to be less detrimental than the profit shifting externality under SA and may offset other externalities under FA.

Item Type: Article
Keywords: Separate accounting; Formula apportionment; Water's edge
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 26 Apr 2012 08:24
Last Modified: 23 Oct 2015 14:07

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