Morse: Revisiting Global Formulary Apportionment

Susan C. Morse (Santa Clara; moving to UC-Hastings) has posted Revisiting Global Formulary Apportionment, 30 Va. Tax Rev. ___ (2010), on SSRN.  Here is the abstract:

This Article examines global destination sales-based formulary apportionment (“DSFA”). It questions whether unilateral U.S. adoption of a DSFA tax would prompt other countries to follow suit, identifying on one hand factors that could encourage a productive capacity shift to the DSFA-adopting jurisdiction and on the other hand origin-based incentives such as business-to-business sales that could encourage the movement of capital investment to jurisdictions other than the adopting jurisdiction. It also analyzes several points of comparison between a globally adopted DSFA tax and the existing separate accounting corporate tax system. These include the potential of anti-tax competition efforts and transfer pricing reform to improve the current system baseline; the continued economic dislocation costs of origin-based and cross-border merger incentives under global DSFA; the costs of global negotiation, compliance and administration; and the limitations of a norm of international corporate taxation for the future evolution of the U.S. corporate income tax. As I plan to explore in future work, the uncertainty and inflexibility of outcomes resulting from broad global reform efforts suggests that unilateral and incremental measures – which could include formulary elements – may provide a better approach to international corporate income tax reform.