Effects of Equalization Tax on Multinational Investments and Transfer Pricing
AbstractThis paper analyzes effects of equalization tax on the decisions of a multinational company. Equalization tax is an extra corporation tax on dividend distributions to ensure that the underlying profit of a dividend has borne a tax in the corporate sector equal to the imputation credit given to the shareholder. Equalization tax is shown to increase incentives for home-country real and financial investments and for transfer pricing to shift taxable income even from low-tax countries to high-tax home-countries of the parent companies. The current EU process of exchanging the imputation system and an equalization tax for a classical system may thus have adverse tax revenue effects in the countries concerned, but improves efficiency of the global economy.
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Bibliographic InfoPaper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 337.
Date of creation: 15 Jun 2004
Date of revision:
Find related papers by JEL classification:
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
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