Reconsidering Formulary Apportionment in the Post-BEPS Era
Published on 9. December 2025
Book
Hardback
408 pages
978-94-035-2729-1 (ISBN)
Description
Series on International Taxation
The OECD's Base Erosion and Profit Shifting (BEPS) Project and its maturing 'two-pillar solution' have their origin in a consensus that the existing international tax system requires significant reform, particularly in addressing the taxation of multinational enterprises (MNEs) and the digitalization of the global economy. This ground-breaking book explores in great depth how formulary apportionment (FA) - by which MNEs allocate profits across countries based on real activity in each jurisdiction, thus removing the incentive to shift reported income to low-tax locations - can become a fundamental reform option in the evolving context of international taxation.
In light of the fact that FA represents a transition from a bilateral to a multilateral mechanism, it becomes crucial to study how each 'market country' assesses its feasibility. This research selects China, thus concentrating on the dynamics of one of the world's largest economies, and demonstrating the broad implications of China's ongoing strategic FA experiment for the global tax system.
The author considers and analyses such aspects of the subject as the following:
- FA-centred perspective of the evolution of the international tax regime;
- complexity and nuances involved in transferring equity principles from domestic to international tax contexts;
- neutrality as an evaluative benchmark in tax policy design;
- impact and shaping influence of China's Belt and Road Initiative on its tax policies and strategy; and
- recommended formula for an international FA regime to explore.
Included is a comparative study of the current FA systems in the United States, Canada, the European Union's Common Consolidated Corporate Tax Base (CCCTB) Proposal, and the newly introduced Pillar One Amount A. By deconstructing these systems into constituent elements, the author offers a component-by-component analysis and extracts lessons for the future architecture of international FA, with respect to highlighting its function and what practical lessons can be drawn.
With the digital transformation exacerbating existing tax system flaws to an intolerable level for most stakeholders, and as dissatisfaction with the current allocation framework has grown among both developing and developed nations, the re-emergence of formulary apportionment is becoming an increasingly concrete reality in the modern global economy. In recognition of continuing efforts to improve the international tax system, this book explores the foundational values and principles that need to be considered when developing an analytical framework for formulary apportionment, with practical insights for reform on a global level. It will be welcomed by tax professionals, policymakers, and researchers worldwide.
The OECD's Base Erosion and Profit Shifting (BEPS) Project and its maturing 'two-pillar solution' have their origin in a consensus that the existing international tax system requires significant reform, particularly in addressing the taxation of multinational enterprises (MNEs) and the digitalization of the global economy. This ground-breaking book explores in great depth how formulary apportionment (FA) - by which MNEs allocate profits across countries based on real activity in each jurisdiction, thus removing the incentive to shift reported income to low-tax locations - can become a fundamental reform option in the evolving context of international taxation.
In light of the fact that FA represents a transition from a bilateral to a multilateral mechanism, it becomes crucial to study how each 'market country' assesses its feasibility. This research selects China, thus concentrating on the dynamics of one of the world's largest economies, and demonstrating the broad implications of China's ongoing strategic FA experiment for the global tax system.
The author considers and analyses such aspects of the subject as the following:
- FA-centred perspective of the evolution of the international tax regime;
- complexity and nuances involved in transferring equity principles from domestic to international tax contexts;
- neutrality as an evaluative benchmark in tax policy design;
- impact and shaping influence of China's Belt and Road Initiative on its tax policies and strategy; and
- recommended formula for an international FA regime to explore.
Included is a comparative study of the current FA systems in the United States, Canada, the European Union's Common Consolidated Corporate Tax Base (CCCTB) Proposal, and the newly introduced Pillar One Amount A. By deconstructing these systems into constituent elements, the author offers a component-by-component analysis and extracts lessons for the future architecture of international FA, with respect to highlighting its function and what practical lessons can be drawn.
With the digital transformation exacerbating existing tax system flaws to an intolerable level for most stakeholders, and as dissatisfaction with the current allocation framework has grown among both developing and developed nations, the re-emergence of formulary apportionment is becoming an increasingly concrete reality in the modern global economy. In recognition of continuing efforts to improve the international tax system, this book explores the foundational values and principles that need to be considered when developing an analytical framework for formulary apportionment, with practical insights for reform on a global level. It will be welcomed by tax professionals, policymakers, and researchers worldwide.