Cross-border loss offset can fuel tax competition

Andreas Hau fler and Mohammed Mardan
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Andreas Hau fler: University of Munich and CESifo
Authors registered in the RePEc Author Service: Andreas Haufler

No 1310, Working Papers from Oxford University Centre for Business Taxation

Abstract: Following recent court rulings, cross-border loss compensation for multinational firms has become a major policy issue in Europe. This paper analyzes the effects of introducing a coordinated cross-border tax relief in a setting where multinational firms choose the size of a risky investment and host countries noncooperatively choose tax rates. We show that coordinated cross-border loss compensation may intensify tax competition when, following current international practice, the parent firm's home country bases the tax rebate for a loss-making subsidiary on its own tax rate. In equilibrium, tax revenue losses may thus be even higher than is implied by the direct effect of the reform. In contrast, tax competition is mitigated when the home country bases its loss relief on the tax rate in the subsidiary's host country.

Keywords: cross-border loss relief; tax competition; multinational rms (search for similar items in EconPapers)
JEL-codes: F23 H25 H32 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ene, nep-int, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Cross-border loss offset can fuel tax competition (2014)
Working Paper: Cross-border loss offset can fuel tax competition (2014)
Working Paper: Cross-Border Loss Offset Can Fuel Tax Competition (2013)
Working Paper: Cross-border loss offset can fuel tax competition (2013)
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