Minimum tax, tax haven and the foreign direct investment

Jean Hindriks and Yukihiro Nishimura

No 2025023, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Technological advances and economic globalization have enabled multinational enterprises (MNEs) to avoid taxes by shifting both profits and real investment to low-tax jurisdictions. We develop a tax-competition model in which asymmetric countries compete for profit and investment in the presence of a tax haven. A key feature of the model is that tax haven can only attract profit but not investment. We show that the impact of the Global Minimum Tax (GMT) depends on the form of country asymmetry (unequal tax base or tax capacity), and on the intensity of competition for investment relative to competition for profit. A central result, shared across both types of country asymmetry, is that intensified competition for investment (via market integration or lower country risk), together with stricter profit-shifting regulations, leads the low-tax host country to prefer a higher minimum tax.

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: 24
Date: 2025-12-30
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2025023

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