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Centralized vs. De-centralized Multinationals and Taxes

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Author Info

  • Nielsen, Søren Bo

    (Department of Economics, Copenhagen Business School)

  • Raimondos-Møller, Pascalis

    (Department of Economics, Copenhagen Business School)

  • Schjelderup, Guttorm

    (Department of Economics, Copenhagen Business School)

Abstract

The paper examines how country tax differences affect a multinational enterprise's choice to centralize or de-centralize its decision structure. Within a simple model that emphasizes the multiple conflicting roles of transfer prices in MNEs – here, as a strategic pre-commitment device and a tax manipulation instrument –, we show that (de-)centralized decisions are more profitable when tax differentials are (small) large.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7652
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Bibliographic Info

Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 10-2005.

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Length: 17 pages
Date of creation: 13 Sep 2005
Date of revision:
Handle: RePEc:hhs:cbsnow:2005_010

Contact details of provider:
Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 34 99
Email:
Web page: http://www.cbs.dk/departments/econ/
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Keywords: Centralized vs. de-centralized decisions; taxes; MNEs;

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References

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  1. Alfons Weichenrieder, 1996. "Fighting international tax avoidance," Fiscal Studies, Institute for Fiscal Studies, vol. 17(1), pages 37-58, February.
  2. S¯ren Bo Nielsen & Pascalis Raimondos-M¯ller & Guttorm Schjelderup, 2003. "Formula Apportionment and Transfer Pricing under Oligopolistic Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 419-437, 04.
  3. 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.
  4. Caillaud Bernard & Jullien Bruno & Picard Pierre, 1991. "Competing vertical structures : precommitment and renegotiation," CEPREMAP Working Papers (Couverture Orange) 9125, CEPREMAP.
  5. Laixun Zhao, 2000. "Decentralization and Transfer Pricing Under Oligopoly," Southern Economic Journal, Southern Economic Association, vol. 67(2), pages 414-426, July.
  6. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, Elsevier, vol. 60(3), pages 401-422, June.
  7. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Kant, Chander, 1988. "Endogenous transfer pricing and the effects of uncertain regulation," Journal of International Economics, Elsevier, Elsevier, vol. 24(1-2), pages 147-157, February.
  9. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  10. Sanna-Randaccio, Francesca & Veugelers, Reinhilde, 2002. "Multinational Knowledge Spillovers with Centralized versus Decentralized R&D: A Game Theoretic Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3151, C.E.P.R. Discussion Papers.
  11. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2010. "Company taxation and tax spillovers: Separate accounting versus formula apportionment," European Economic Review, Elsevier, Elsevier, vol. 54(1), pages 121-132, January.
  12. Michael L. Katz, 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 307-328, Autumn.
  13. Guttorm Schjelderup & Lars Sorgard, 1997. "Transfer Pricing as a Strategic Device for Decentralized Multinationals," International Tax and Public Finance, Springer, Springer, vol. 4(3), pages 277-290, July.
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Cited by:
  1. Norbäck, Pehr-Johan & Persson, Lars & Vlachos, Jonas, 2006. "Cross-Border Acquisitions and Corporate Taxes: Efficiency and Tax Revenues," Working Paper Series, Research Institute of Industrial Economics 663, Research Institute of Industrial Economics.

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