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Combined Reporting and the Unitary Business Principle: A Doctrine That Has Not (Yet) made the Atlantic Crossing
The article was authored by Joann M. Weiner and is 26 pages in length. It was originally published in the State and Local Tax Lawyer 2008 Symposium Edition.
The articles and essays included in this Edition offer an overview of the group reporting schemes in use across the country and examine the economic origins and the evolution of the unitary business principle that underlies combined reporting. They explore the policy considerations that states assess in choosing whether to adopt combined reporting and the conflicting policy goals of different jurisdictions. Additionally, they examine single vs. aggregate taxpayer theory, analyze procedural issues raised by combined reporting, explore the ultimate (but apparently unreachable) goal of uniformity, and, finally, weigh all the pros and cons of combined reporting. The day-long program from which these pieces are adapted was held at Georgetown University Law Center on May 14th, 2008.
For information on the State and Local Tax Lawyer 2008 Symposium Edition, click here.
Article Abstract
This Article discusses combined reporting and the unitary business principle employed in the U.S. states, and evaluates how the European Union has modified this principle for purposes of taxing corporations conducting cross-border business within the European Union. It first examines how the states apply the unitary business principle, which is unique, and then discusses some of the historical and constitutional influences that have shaped state corporate income tax practices.
It then examines the European Commission's company tax reform efforts and its interest in adopting a common consolidated corporate tax base (CCCTB) with formulary apportionment as a way to combat income shifting and to reduce the complexity of complying with the corporate income tax in the 27 EU member states. Although the Tax Directorate at the European Commission expects to propose introducing a consolidated tax base into the European Union, it has not considered adopting the unitary principle. This reluctance to consider the unitary principle stems in part from the complexity involved in defining exactly what constitutes a unitary business, as well as from the historical aversion to the unitary principle that arose during the controversy over the application of the principle on a worldwide combined reporting basis by many states until the early 1990s. This Article moves beyond that historical controversy by analyzing a critical European Court of Justice case in this area and suggests that consolidation would resolve many of the issues that the EU member states are now addressing. In particular, the Article uses data from an EU multinational company to illustrate a benefit of using a common consolidated tax base with formulary apportionment in the European Union: the system reduces the volatility of corporate tax revenues.
The Article concludes that both consolidation and combination with formulary apportionment resolve some of the tax avoidance problems that arise within an integrated market.
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