Shu-Chien Chen successfully defended her PhD dissertation titled Towards a Neutral Formulary Apportionment System in Regional Integration on 15 September 2022. The PhD defence ceremony was online streamed so audiences from abroad also watched the live recording. The dissertation is supervised by two promoters: Professor Maarten de Wilde and Reinout Kok. The examination committee members are Professor Sigrid Hemels, Professor Peter Kavelaars, Professor Irma Mosquera Valderrama (Leiden), Professor Henk Vording (Leiden), Professor Daniēl Smit (University of Amsterdam) Prof. Hans van den Hurk (Maastricht University).
This dissertation re-visits existing principles and theories in the international tax regime. The dissertation re-builds the normative framework for the EU’s tax reform. The normative framework for the EU’s formulary apportionment incorporates two elements: the public benefit principle and market neutrality. Based on this benefit-based market neutrality framework, taxpayers’ input and output activities justify the selection of factors for the EU’s formulary apportionment regime. Therefore, the sales factor, the labour factor and the asset factor are all necessary for EU formula, and should be weighted equally. The sales factor represents the public benefits of maintaining the customers’ market; the labour factor represents the public benefits of maintaining the labour market; and the asset factor represents the public benefits of providing local non-human resources. This three-factor formulary apportionment regime would also be consistent with the goal of aligning value creation and taxation, because each weighting factor represents the value creation chain. Accordingly, the taxable nexus for the EU’s formulary apportionment should use “factor presence nexus” instead of traditional permanent establishment (PE).
During the defence, the examination committee raised thought-provoking questions about the justifications for adopting the benefit-based market-neutral formulary apportionment. These questions from opponents involve the justification of a formulary apportionment regime to deviate arm’s length principle and the possibility of adopting a hybrid regime; how the Court of Justice would adjudicate the case in the formulary apportionment regime since the arm’s length principle is already used in the state aid case law; how the factor presence nexus replaces the PE threshold; how the problem lost in translation could be prevented in the process legal transplantation; how the normative framework reconciles the economic effect of true corporate tax incidence and the benefit principle; why the labour factor is justified and the relation to the wage tax; how automated robots should be under the formulary apportionment regime. All the questions are addressed smoothly.
The commercialised version of the PhD dissertation will be published by Kluwer in 2023. Besides the new coming book, two articles based on the dissertation conclusion are published at MBB Belasting Beschouwingen and Caribbean Journal of Tax.