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Minimum tax, tax haven and the foreign direct investment

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  • Hindriks, Jean
  • Nishimura, Yukihiro

Abstract

Technological advances and economic globalization have enabled multinational enterprises (MNEs) to avoid taxes by shifting both profits and real investment to low-tax jurisdictions. We develop a tax-competition model in which asymmetric countries compete for profit and investment in the presence of a tax haven. A key feature of the model is that tax haven can only attract profit but not investment. We show that the impact of the Global Minimum Tax (GMT) depends on the form of country asymmetry (unequal tax base or tax capacity), and on the intensity of competition for investment relative to competition for profit. A central result, shared across both types of country asymmetry, is that intensified competition for investment (via market integration or lower country risk), together with stricter profit-shifting regulations, leads the low-tax host country to prefer a higher minimum tax.

Suggested Citation

  • Hindriks, Jean & Nishimura, Yukihiro, 2025. "Minimum tax, tax haven and the foreign direct investment," LIDAM Discussion Papers CORE 2025023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2025023
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    References listed on IDEAS

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    Cited by:

    1. Hindriks, Jean & Nishimura, Yukihiro, 2025. "Tax and Development: Competition for real investment and Profit Shifting," LIDAM Discussion Papers CORE 2025022, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Hindriks, Jean & Nishimura, Yukihiro, 2025. "Minimum tax, tax haven and the foreign direct investment," LIDAM Discussion Papers CORE 2025023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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