Debt and Taxes as Value-Added Factors for Multinational Enterprises: International Policy Implications

Juan José Durán-Herrera () and Prosper Lamothe-Fernández ()
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Juan José Durán-Herrera: Universidad Autónoma de Madrid
Prosper Lamothe-Fernández: Universidad Autónoma de Madrid

Chapter Chapter 5 in Advances in Empirical Economic Research, 2023, pp 69-87 from Springer

Abstract: Abstract The international heterogeneity of tax regimes among countries, where multinational firms operate, and the generally accepted principle that interest on debt is treated as a deductible cost for tax purposes, reduces corporate benefits, and consequently, the amount of taxes paid has consequences on the allocation of resources: the firm obtained a lower cost of capital (and potentially could invest more), the shareholders return increases (as well as executives paid), the income of Tax Authorities diminished, and a greater inequality results (given the high concentration of wealth and MNE capital ownership). A global economy needs a simpler and more transparent and equivalent corporate tax system among countries that only can be reached through international cooperation. Globalization as well as the process (evolution) of the digital economy have contributed to tax competition (About 60% of profits of MNE are the results of tax competition (IMF, World Economic Outlook, 2022)) that reduces income taxes of countries.

Keywords: Tax benefits of debt; Inequality; Taxes on multinational firms; Tax shield; F23; F38; G32; H25; H32 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-031-22749-3_5

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DOI: 10.1007/978-3-031-22749-3_5

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