Formulary Apportionment: A Revamp in the Post-Base Erosion and Profit Shifting Era?

Abstract

In this article, the author analyses the advantages and drawbacks of adopting Formulary Apportionment (FA) as the governing mechanism for the commercial and financial relations between associated enterprises of multinational enterprises (MNE) groups. The author considers the origin of FA, which countries are adopting it, and what its future may be in light of the implementation of the base erosion and profit shifting (BEPS) Action Plan. In particular, the author suggests that international organizations should go more in depth on the analysis of the mechanism, from an empirical as well as a theoretical standpoint, as a by-product on the current work on the application of the profit split method carried out by the Organisation for Economic Cooperation and Development (OECD) in light of the BEPS project.