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Corporate Tax Systems, Multinational Enterprises, and Economic Integration

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  • Hans Jarle Kind
  • Helene Midelfart
  • Guttorm Schjelderup

Abstract

Multinational firms are known to shift profits and countries are known to compete over shifty profits. Two major principles for corporate taxation are Separate Accounting (SA) and Formula Apportionment (FA). These two principles have very different qualities when it comes to preventing profit shifting and preserving national tax autonomy. Most OECD countries use SA. In this paper we show that a reduction in trade barriers lowers equilibrium corporate taxes under SA, but leads to higher taxes under FA. From a welfare point of view the choice of tax principle is shown to depend on the degree of economic integration.

Suggested Citation

  • Hans Jarle Kind & Helene Midelfart & Guttorm Schjelderup, 2004. "Corporate Tax Systems, Multinational Enterprises, and Economic Integration," CESifo Working Paper Series 1241, CESifo.
    • Handle: RePEc:ces:ceswps:_1241
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    Keywords

    multinational enterprises; economic integration; trade costs; international tax competition; tax regimes;
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