On the implications of introducing cross-border loss-offset in the European Union

Zarko Kalamov and Marco Runkel ()

Journal of Public Economics, 2016, vol. 144, issue C, 78-89

Abstract: This article investigates a tax competition model where countries compete for capital and profits of multinational enterprises (MNEs) through statutory tax rates and cross-border loss-offset provisions, which allow a transfer of foreign subsidiaries' losses to the parent company. A joint implementation of full cross-border loss-relief is welfare maximizing, because it ensures production efficiency and no profit shifting in equilibrium. Local governments choose zero level of the loss-relief in a noncooperative equilibrium, if only capital is mobile and relax the loss-offset, when MNEs engage in profit shifting. Therefore, allowing multinationals to undertake international tax planning activities may be welfare-improving in our model.

Keywords: Cross-border loss-offset; Tax competition; Profit shifting (search for similar items in EconPapers)
JEL-codes: F23 H32 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Working Paper: On the Implications of Introducing Cross-Border Loss-Offset in the European Union (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:144:y:2016:i:c:p:78-89

DOI: 10.1016/j.jpubeco.2016.10.007

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