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Taxes and Decision Rights in Multinationals

Søren Nielsen, Pascalis Raimondos and Guttorm Schjelderup ()

No 5952, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine how a multinational's choice to centralize or de-centralize its decision structure is affected by country tax differentials. Within a simple model that emphasizes the multiple conflicting roles of transfer prices in MNEs - here, as a strategic pre-commitment device and a tax manipulation instrument - we show that decentralization is preferred in case of small tax differentials, whereas centralization can be more profitable, when tax differentials are large. In essence, the organizational flexibility of MNEs is triggered by the scope for tax minimization. Our analysis allows for both commitment and non-commitment to transfer prices, and for alternative modes of competition.

Keywords: centralized vs. de-centralized decisions; MNEs; taxes; transfer prices (search for similar items in EconPapers)
JEL-codes: F23 H25 L23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2006-11
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Journal Article: Taxes and Decision Rights in Multinationals (2008) Downloads
Working Paper: Taxes and Decision Rights in Multinationals (2007) Downloads
Working Paper: Taxes and Decision Rights in Multinationals (2006) Downloads
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