PhD defence S. (Shu-Chien) Chen

Dissertation in short:

Dividing taxing rights on multinational enterprises (MNEs)’ cross-border taxable income between states is a difficult task in the international regime. Such task is described as difficult as slicing a shadow, because it is difficult to identify the true geographical source of cross-border taxable income. 

 “Formulary apportionment” (FA) is one option to divide taxing rights in the EU tax reform proposal and US state taxation experiences. While accepting that every jurisdiction in which a firm is operative can be considered a jurisdiction of source, it is more feasible to use a formula instead of adopting an all-or-nothing approach to decide which state is entitled to levy tax. As a metaphor, FA functions like a knife to share the pie of cross-border taxable income. The main question of this dissertation is how the knife should be designed under EU law and any envisaged EU corporate tax system. 

My research concludes that a well-designed formulary apportionment taxation system can contribute to a market neutral status in the company tax area, where MNE taxpayers’ economic activities correspond to the public benefits enjoyed. A formula should include the sales, asset and labour factors and they should be equally weighted, because these three factors represent the public benefits of providing the customers market, the resources, and the labour market in the states.