Would a CCCTB Mitigate Profit Shifting? /

Optimal investment on the part of both owners and managers is given where the expected marginal after-tax profit of IO I and IO II correspond, and the optimal amount of profits being shifted to IO I or Z is determined such that the expected marginal tax reduction equals the expected mar- ginal cost of a profit shift. [...] Since we do not explicitly model the input of labor and capital in a production function, we use the sum of the margin- al profits of each production factor allocated to an investment object as a proxy for the sum of wages paid in this investment object (under the general assumption that labor is remunerated such that the wage equals the marginal productivity of labor): 11. [...] Due to the fact that the tax-rate differential between the combined tax rate applicable to the investments under formula apportionment and Z is smaller than between the high-taxed investment and Z under separate accounting, the positive effect of profit shifting to Z is comparatively small under formula apportionment. [...] These strategies include the allocation of production factors and the transfer of profits from IO II to IO I (under separate accounting), and the transfer of profits (from IO II or the tax group) to the additional investment object Z. In principle, the validity of findings resulting from experimental investigations de- pends on their transferability into real world settings. [...] The owner scenario reflects the situation that a transparent entity is managed by its owners and takes into consideration the risk of a potential loss.9 Therefore, in this scenario, the design of our experiment is based on the assumption that the par- ticipants in the experiment receive remuneration linked to the (positive or negative) profit made from investing in IO I, IO II, and Z. In order for