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Formulary apportionment
Jan. 25th, 2018 08:51 amhttps://www.bostonglobe.com/ideas/2018/01/20/trillions-dollars-have-sloshed-into-offshore-tax-havens-here-how-get-back/2wQAzH5DGRw0mFH0YPqKZJ/story.html
"...
The only thing to do, then, was to calculate the overall value of the railroad and divide it into discrete chunks. If the stretch of track in your county comprised 1 percent of the railroad’s length, it would be assigned 1 percent of the overall value of the railroad — and it would be taxed accordingly.
It’s an approach accountants call “formulary apportionment,” and it’s still in wide use today — with state authorities using sales figures and other data, rather than railroad tracks, as a guide. Experts say the same model could be applied to international taxation.
If Apple sold half its iPhones and laptops in the United States, then half of its profits would be subject to the American corporate income tax. Simple as that.
With apportionment, it wouldn’t matter where a corporation put its money. Apple could stash its billions in a shell company on the island of Jersey or in a bank account in Jersey City. It’s the geography of consumers, not cash, that would control.
That makes the system much harder to game, says Kimberly Clausing, a Reed College economics professor. You can ship all your money to an exotic isle at the stroke of a pen, but “you can’t move all your consumers to Bermuda. Consumers are pretty sticky. They stay where they are.”
..."
"...
The only thing to do, then, was to calculate the overall value of the railroad and divide it into discrete chunks. If the stretch of track in your county comprised 1 percent of the railroad’s length, it would be assigned 1 percent of the overall value of the railroad — and it would be taxed accordingly.
It’s an approach accountants call “formulary apportionment,” and it’s still in wide use today — with state authorities using sales figures and other data, rather than railroad tracks, as a guide. Experts say the same model could be applied to international taxation.
If Apple sold half its iPhones and laptops in the United States, then half of its profits would be subject to the American corporate income tax. Simple as that.
With apportionment, it wouldn’t matter where a corporation put its money. Apple could stash its billions in a shell company on the island of Jersey or in a bank account in Jersey City. It’s the geography of consumers, not cash, that would control.
That makes the system much harder to game, says Kimberly Clausing, a Reed College economics professor. You can ship all your money to an exotic isle at the stroke of a pen, but “you can’t move all your consumers to Bermuda. Consumers are pretty sticky. They stay where they are.”
..."
