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Strategic Taxation of the Multinational Enterprise: Profit-Shifting and Globally-Joint Inputs

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  • Denise Eby Konan

    ()
    (Department of Economics, University of Hawaii at Manoa)

Abstract

This paper models strategic taxation policy of home and host governments when a multinational enterprise sets transfer prices on globally-joint inputs such as research and development. Tax credit and deduction allowances, as well as no taxation of foreign-earned profits, result in identical optimal transfer price solutions and national income effects in both countries. An equilibrium home tax solution is to tax foreign-earned profits at a higher rate than domestically earned profits. The multinational responds by shifting profits abroad through transfer pricing mechanisms.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/88-98/WP_95-2.pdf
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 199502.

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Length: 17 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:hai:wpaper:199502

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Keywords: transfer pricing; strategic taxation; multinational enterprise;

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