Splitting of Corporate Taxes in Germany and Formulaic Distribution of a CCCTB – Critical Comparison

The introduction of a formulaically apportioned common consolidated corporate tax base (CCCTB) could represent a milestone in international taxation. No agreement has yet been reached, however. In contrast, Germany already has a long-standing system that apportions corporate taxes by splitting trade tax and corporate income tax. This conceptual study, presented at the European Accounting Association (EAA) Congress in Bergen in 2022, will examine whether the German method of splitting could lead to some lessons for an appropriate design for an international profit distribution formula.

Methodologically, we use a two-step approach: First, we compare the designs, and then we juxtapose both on a factual level. Next, we ask what the objectives these mechanisms have; do they even coincide? If the goals are not comparable, one cannot indisputably serve as a model for the other. We determine that, even though there are partial deviations, a closer look reveals significant overlaps; however, the German implementation is far from consistent and prioritises practicability. This leads us to our main result: The German system makes a clear value decision towards practicability, although there is a different set of aims. For the implementation of formulaic EU profit sharing, the lesson to be learned is that practicability should play a central role in the design of the formula. This lesson is important and helpful to accompany and support the implementation process in the EU.