The draft for a Common Consolidated Corporate Tax Base Directive in the European
Union includes the suggestion for an apportionment formula which allocates taxable group profits to
group member corporations. These allocated profits shall then be taxed in the respective Member
States. The draft directive delegates the right to define one factor of the apportionment formula, the
term "Employee" to the Member States, who are therefore free to choose a narrow or a broad
definition, the latter including also atypical employment schemes. Using a game-theoretic approach
the paper shows that the individually rational strategy of any Member State to define "Employee"
broadly so as to maximize the volume of the apportionment factor and thus maximize the allocated
share of taxable income is only the best solution when tax rate differences and differences in the
volume of atypical employment schemes are disregarded. If such differentials and the corporate
groups' reactions to different Member States' definitions are included in modelling the game's pay-offs
a narrow definition of "Employee" yields the highest individual pay-offs to the Member States
involved. This change of dominant strategies is triggered by the corporate group's shifting of the
employment factor from high-tax to low-tax Member States. Our paper differs from previous
research on the economic effects of the CCCTB apportionment formula as it is the first paper
identifying and analysing the employment factor and its distorting effects. The paper discusses
possible tax minimizing strategies for corporate groups by shifting workforce and develops a model
to quantify these potential relocations. Furthermore the paper presents advice to policy makers in
their "Employee" definition decision and shows how Member States could use this definition to both
minimize outward factor shifting and maximize inward factor shifting.(authors' abstract) / Series: WU International Taxation Research Paper Series
| Identifer | oai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:4093 |
| Date | January 2014 |
| Creators | Eberhartinger, Eva, Petutschnig, Matthias |
| Publisher | WU Vienna University of Economics and Business, Universität Wien |
| Source Sets | Wirtschaftsuniversität Wien |
| Language | English |
| Detected Language | English |
| Type | Paper, NonPeerReviewed |
| Format | application/pdf |
| Relation | http://epub.wu.ac.at/4093/ |
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