Effects of Equalization Tax on Multinational Investments and Transfer Pricing
This 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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- Boadway, Robin & Bruce, Neil, 1992.
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- Michael Devereux & Harold Freeman, 1995. "The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes," International Tax and Public Finance, Springer, vol. 2(1), pages 85-106, February.
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