Taxes and Decision Rights in Multinationals
We examine how a multinational's choice to centralize or decentralize its decision structure is affected by country tax differentials. Within a simple model that emphasizes the multiple conflicting roles of transfer prices in multinational enterprises (MNEs)-here, as a strategic precommitment device and a tax manipulation instrument-we show that centralization is more profitable when tax differentials are large. When tax differentials are small, decentralization can be performed in two different ways each providing the highest profits in a particular range of the tax differential. Hence, the paper emphasizes the organizational flexibility that MNEs have in pursuing tax optimization. Copyright 2008 Blackwell Publishing, Inc..
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Volume (Year): 10 (2008)
Issue (Month): 2 (04)
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