Supplementing Consolidation and Apportionment with anti-abuse provisions

Although it exhibits a series of interesting properties including putting an end to transfer pricing and other losses and profit distribution strategies, the allocation of cross border profits in line with international consolidation and apportionment raises some issues. One of them is the temptation for companies to locate their taxable profits outside the consolidating area, a behavior likely to ruin all the best of the system. Therefore consolidation and apportionment should be supplemented with a serious series of anti-abuse measures, especially provisions against controlled foreign companies. Those imply a revision of the taxation of foreign companies, actually a move from exemption to crediting for participating countries, and a revision of tax treaties accordingly. However, such a change, despite its economic justification, would raise several legal issues, such as its compatibility with the OECD Model and with EC Law (in the European context). The possibility of restricting this change to the sole abusive situations should be examined. Keywords: European Union, Multinational Firms, Taxation JEL: F23, H25, K34