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Taxation and the international strategy of Japanese multinational enterprises

Author

Listed:
  • Céline Azemar

    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Grégory Corcos

    (PJSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Andrew Delios

    (Business school - NUS - National University of Singapore)

Abstract

This paper analyzes the effect of statutory tax rates on the location of Japanese capital in emerging countries. Considering the fact that the difference between Japan and foreign tax rates can engender transfer pricing manipulation to diminish tax liabilities, and that some firms are more able to manipulate transfer pricing, such as wholly-owned ventures and high technology affiliates, we investigate the sensitivity of Japanese capital to foreign tax rates by distinguishing wholly-owned ventures from joint-ventures and high R&D affiliates from low R&D affiliates. Based on country, parent firm and sector characteristics an investment equation is estimated on a sample of 3774 Japanese affiliates in 49 emerging countries. We obtain a greater semi-elasticity between investment and the statutory tax rate for wholly-owned affiliates and R&D intensive parents. We interpret these results as indirect evidence for abusive transfer pricing to be one of the determinants of FDI flows.

Suggested Citation

  • Céline Azemar & Grégory Corcos & Andrew Delios, 2006. "Taxation and the international strategy of Japanese multinational enterprises," PSE Working Papers halshs-00590421, HAL.
  • Handle: RePEc:hal:psewpa:halshs-00590421
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00590421
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    References listed on IDEAS

    as
    1. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May.
    2. Jan Willem Gunning & Paul Collier, 1999. "Explaining African Economic Performance," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 64-111, March.
    3. Céline Azémar & Rodolphe Desbordes & Jean-Louis Mucchielli, 2007. "Do tax sparing agreements contribute to the attraction of FDI in developing countries?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(5), pages 543-562, October.
    4. Jenkins, Glenn P & Wright, Brian D, 1975. "Taxation of Income of Multinational Corporations: The Case of the United States Petroleum Industry," The Review of Economics and Statistics, MIT Press, vol. 57(1), pages 1-11, February.
    5. Forestier, Emmanuel & Grace, Jeremy & Kenny, Charles, 2002. "Can information and communication technologies be pro-poor?," Telecommunications Policy, Elsevier, vol. 26(11), pages 623-646, December.
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