Why Minimum Corporate Income Taxation Can Make the High-Tax Countries Worse off: the Compliance Dilemma

Yukihiro Nishimura (ynishimu@econ.osaka-u.ac.jp) and Jean Hindriks
Additional contact information
Yukihiro Nishimura: Graduate School of Economics, Osaka University

No 21-10, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: Minimum taxation means that if a multinational enterprise (MNE) declares its operations in a jurisdiction taxing less than the minimum tax, the countries where the real economic activity takes place would have the right to tax the difference. There is a revival of the minimum tax standard for two reasons. First, there is concern about the complexity of assigning taxing rights and the effectiveness of profit-splitting rules in eliminating profit shifting. Second, the minimum tax standard has the merit of tackling multinational tax avoidance at its root. However, this argument ignores the strategic interaction between minimum taxation and tax compliance. Building upon Hindriks and Nishimura (2021), we develop a framework in which effective international tax compliance requires enforcement coordination between countries (e.g. exchange of information). We show that under sufficient market asymmetry (translating into the tax differential), minimum taxation may induce the low-tax countries to withdraw from international tax compliance agreements. We then show that such a breakdown of cooperation can make the high-tax country worse off compared to the absence of minimum taxation.

Keywords: Profit shifting; Tax competition; Tax enforcement (search for similar items in EconPapers)
JEL-codes: C72 F23 F68 H25 H87 (search for similar items in EconPapers)
Pages: 14pages
Date: 2021-07
New Economics Papers: this item is included in nep-acc, nep-cwa, nep-gth, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www2.econ.osaka-u.ac.jp/econ_society/dp/2110.pdf (application/pdf)

Related works:
Working Paper: Why Minimum Corporate Income Taxation Can Make the High-Tax Countries Worse off: the Compliance Dilemma (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:2110

Access Statistics for this paper

More papers in Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by The Economic Society of Osaka University (shiryo@econ.osaka-u.ac.jp).