5.3.1 Introduction

While group taxation regimes are generally only applicable on a domestic level, the group taxation 2.0 variants that are discussed in this section apply or can apply in a cross-border context. They reflect an enterprise approach to a larger extent.1 For the worldwide formulary apportionment system, the worldwide group is the taxable person (‘who to tax’). Additionally, they apply a different profit allocation method: rather than the arm’s length principle, formulary apportionment is used (‘where to tax’).

In this section, first, the arm’s length principle and formulary apportionment are discussed in general terms (par. 5.3.2). Subsequently, the following group taxation 2.0 variants are discussed successively: water’s edge formulary apportionment (the Canadian regime, par. 5.3.3), the proposed CCCTB (par. 5.3.4) and worldwide formulary apportionment (the regime that used to apply in California, United States, par. 5.3.5). This sequence is chosen because each system goes a step further in applying the enterprise approach: the first applies to a country group, the second to a bloc group2 and the third to a worldwide group.3 In this discussion the focus will be on whether the system would provide for less double taxation, less tax avoidance opportunities, or in more general terms: whether it would lead to a more neutral system. The extent to which these extended group approaches lead to issues from a tax treaty perspective is also described.