CCCTB - The Employment Factor Game

Eberhartinger, Eva and Petutschnig, Matthias (2014) CCCTB - The Employment Factor Game. WU International Taxation Research Paper Series, 2014-01. WU Vienna University of Economics and Business, Universität Wien, Vienna.


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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)

Item Type: Paper
Additional Information: Editors: Eva Eberhartinger, Michael Lang, Martin Zagler (Vienna University of Economics and Business), Erich Kirchler (University of Vienna) and Rupert Sausgruber (University of Innsbruck)
Keywords: CCCTB / Game Theory / Formulary Apportionment / Group Taxation / Corporate Income Tax / Dependent Self-Employed / Europäische Union / Spieltheorie / Gruppenbesteuerung / Unternehmensbesteuerung / Steuerrecht
Classification Codes: RVK PS 3780, PP 8310, QL 410, QM 430, SK 860 ; JEL H21, H23, H25, K34
Depositing User: ePub Administrator
Date Deposited: 24 Feb 2014 11:33
Last Modified: 19 Jul 2020 11:57


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