 Tax differences and international location strategiesMichael Kopel and Clemens Löffler International Journal of Production Economics, 2023, vol. 256, issue C Abstract: This paper examines the influence of tax rate differences and international transfer pricing regulations on the profit-maximizing location strategies of a multinational firm (MNF). We show how a MNF that sells its products in multiple markets and manufactures multiple inputs used for its own production can optimize its tax strategy by jointly selecting the location of input production and the transfer pricing method. We find that a production technology with multiple complementary inputs results in a close connection between national and international transfer prices. Selecting different location choices enables the MNF to base international transfer prices on different arm’s length standards. The optimal location strategy and transfer pricing approach balances the gains from profit-shifting to the low-tax country with the losses that occur due to distorted quantity choices. The MNF’s trade-off between the gains or losses can be moderated by adjusting domestic transfer prices for transactions between the divisions in the high-tax country. Keywords: MNF’s location strategy; External CUP; Internal CUP; Tax optimization; Transfer pricing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:256:y:2023:i:c:s0925527322003310 DOI: 10.1016/j.ijpe.2022.108749 Access Statistics for this article International Journal of Production Economics is currently edited by Stefan Minner More articles in International Journal of Production Economics from Elsevier |
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