Taxes and Decision Rights in Multinationals

Søren Nielsen, Pascalis Raimondos () and Guttorm Schjelderup

No 2007/11, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

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; taxes; transfer prices; MNEs (search for similar items in EconPapers)
JEL-codes: F23 H25 L23 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2007-03-27
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Taxes and Decision Rights in Multinationals (2008)
Working Paper: Taxes and Decision Rights in Multinationals (2006)
Working Paper: Taxes and Decision Rights in Multinationals (2006)
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