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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References listed on IDEAS
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- Seppo Kari, 1999. "Dynamic Behaviour of the Firm Under Dual Income Taxation," Research Reports 51, Government Institute for Economic Research Finland (VATT).
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- Robin Boadway & Neil Bruce, 1988.
"Problems with Integrating Corporate and Personal Income Taxes in an Open Economy,"
735, Queen's University, Department of Economics.
- Boadway, Robin & Bruce, Neil, 1992. "Problems with integrating corporate and personal income taxes in an open economy," Journal of Public Economics, Elsevier, vol. 48(1), pages 39-66, June.
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