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Should countries control international profit shifting ?

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Author Info
PERALTA, Susana
WAUTHY , Xavier
van YPERSELE, Tanguy

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Abstract

This paper presents a fiscal competition model in which policy decisions are not only corporate taxes but also whether or not to control the multinational firms'(MNF) profit shifting activities. MNFs manipulate transfer prices as a means to shift profits from high to low tax countries. National governments may hinder such a behavior by monitoring the MNF's accounts. We show that a country may optimally decide not to monitor the MNF for two different reasons. On the one hand, that makes it anattractive location for the MFN even if the corporate tax is high. On the other hand, not monitoring increases the mobility of the MFN's profits. This shifts the focus of tax competition in that corporate taxation then influences not only the MNF's location as the place where it declares its profits.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003072.

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Date of creation: 01 Oct 2003
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Handle: RePEc:cor:louvco:2003072

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Related research
Keywords: Taxation of multi-national Þrms; proÞt shifting; transfer prices; tax competition;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-25, April.
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  2. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, vol. 60(3), pages 401-422, June. [Downloadable!] (restricted)
  3. Baye, Michael R. & Kovenock, Dan & de Vries, Casper G., 1992. "It takes two to tango: Equilibria in a model of sales," Games and Economic Behavior, Elsevier, vol. 4(4), pages 493-510, October. [Downloadable!] (restricted)
  4. Bartelsman, Eric J. & Beetsma, Roel M. W. J., 2003. "Why pay more? Corporate tax avoidance through transfer pricing in OECD countries," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2225-2252, September. [Downloadable!] (restricted)
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  5. Clausing, Kimberly A., 2003. "Tax-motivated transfer pricing and US intrafirm trade prices," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2207-2223, September. [Downloadable!] (restricted)
  6. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
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  1. Cross, Robin M. & Buccola, Steven T. & Thomann, Enrique A., 2006. "Cooperation and Cheating," 2006 Annual meeting, July 23-26, Long Beach, CA 21158, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Haufler, Andreas, 2006. "Die Besteuerung multinationaler Unternehmen," Discussion Papers in Economics 1153, University of Munich, Department of Economics. [Downloadable!]
  3. Schreiber, Ulrich & Overesch, Michael & Büttner, Thiess & Wamser, Georg, 2006. "The Impact of Thin-Capitalization Rules on Multinationals? Financing and Investment Decisions," ZEW Discussion Papers 06-68, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
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  4. Andreas Haufler & Marco Runkel, 2008. "Firms' financial choices and thin capitalization rules under corporate tax competition," Working Papers 0815, Oxford University Centre for Business Taxation. [Downloadable!]
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  5. Overesch, Michael, 2007. "The Effects of Multinationals? Profit Shifting Activities on Real Investments," ZEW Discussion Papers 07-071, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  6. O. Amerighi, 2006. "Transfer Pricing and Enforcement Policy in Oligopolistic Markets," Working Papers 567, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
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  7. Stöwhase, Sven, 2004. "Asymmetric Capital Tax Competition with Profit Shifting," Discussion Papers in Economics 454, University of Munich, Department of Economics. [Downloadable!]
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  8. O. Amerighi & S. Peralta, 2007. "Exports Versus Horizontal Foreign Direct Investment with Profit Shifting," Working Papers 604, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  9. Sven Stöwhase, 2006. "Discrete Investment and Tax Competition when Firms shift Profits," cege – Center for European, Governance and Economic Development Research Discussion Papers 52, cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
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