Cost Sharing Arrangements and Income Shifting

Lisa De Simone and Richard Sansing
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Lisa De Simone: Stanford University
Richard Sansing: Dartmouth College and CentER, Tilburg University

Research Papers from Stanford University, Graduate School of Business

Abstract: This study investigates the cost sharing arrangement (CSA), which is a mechanism used by multinational corporations (MNCs) to shift valuable intellectual property (IP) offshore to low-tax jurisdictions. We find that a CSA enables the MNC to shift income to low-tax foreign jurisdictions when the effect of domestic marketing intangibles on foreign income exceeds the effect of foreign marketing intangibles on domestic income. We also find that a CSA is less attractive if payments for the use of IP are not based on the fair market value of that IP. If the MNC can understate the value, it prefers to sell domestically developed IP to a foreign subsidiary, which in turn will develop the IP. If the tax authority can overstate the value by imposing retroactive revaluations of the IP, the MNC prefers to develop the IP domestically.

JEL-codes: D23 H25 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-mfd
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3250

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