Reforming the taxation of multijurisdictional enterprises in Europe. CESifo Economic Studies

This paper investigates replacing separate taxation by consolida-tion and formulary apportionment in a Bottom-up Federation, when a multijurisdictional firm is mobile in various respects. The reform is decided cooperatively either by all the jurisdictions or by some of them, while tax rates remain within the competence of each jurisdic-tion separately. The paper sets forth the conditions for the reform to be social welfare enhancing, while not increasing tax competition. Among them, the formula should emphasize criteria that the Mul-tijurisdictional Enterprise cannot easily manipulate and the consoli-dating area protect its capacity to actually levy taxes by adopting a crediting system, possibly extended to accrued capital gains, vis-à-vis the rest of the world. Policy conclusions are suggested accordingly