Corporate Tax Systems, Multinational Enterprises, and Economic Integration

Hans Jarle Kind (), Helene Midelfart and Guttorm Schjelderup ()

No CESifo Working Paper No. 1241, CESifo Working Paper Series from CESifo Group Munich

Abstract: Multinational firms are known to shift profits and countries are known to compete over shifty profits. Two major principles for corporate taxation are Separate Accounting (SA) and Formula Apportionment (FA). These two principles have very different qualities when it comes to preventing profit shifting and preserving national tax autonomy. Most OECD countries use SA. In this paper we show that a reduction in trade barriers lowers equilibrium corporate taxes under SA, but leads to higher taxes under FA. From a welfare point of view the choice of tax principle is shown to depend on the degree of economic integration.

Keywords: multinational enterprises; economic integration; trade costs; international tax competition; tax regimes (search for similar items in EconPapers)
JEL-codes: F15 F23 H25 H87 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2004
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Journal Article: Corporate tax systems, multinational enterprises, and economic integration (2005)
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