taxation and the allocation of risk inside the multinational firm abstract this paper provides the first theoretical and empirical analysis of how taxation shapes the joint allocation of risk and profits inside the multinational firm theoretically we identify three mechanisms through which corporate taxes may shape the within firm allocation of risk 1 transfer pricing rules requiring risk to be compensated with higher expected returns create incentives to shift risk to low tax jurisdictions as a means to shift profits 2 risk averse owners create incentives to allocate risk to high tax affiliates to maximize risk sharing with governments 3 limited loss offset creates incentives to shift risk to affiliates in other countries empirically we show that multinational firms disproportionately allocate risk to low tax countries and that the key mechanism is the nexus between risk and profits established by transfer pricing rules within firm differences in risk explain a significant fraction of the well established correlation between profits and tax rates suggesting that risk shifting is a quantitatively non negligible channel for profit shifting

on the determinants of direct foreign investment evidence from east and southeast asia abstract a model of derived demand for foreign capital by a multiple product monopolist is estimated for seven asian countries direct foreign investment dfi inflows are estimated to be less elastic with respect to the costs of capital including taxes than to wages and to be more elastic with respect to aggregate demand in export markets than domestic demand the output deterrent effect of higher wages is estimated to outweigh any substitution toward greater capital intensity the estimates also suggest that dfi rises with greater costs within the investors home countries no similar effect occurs with respect to costs in rival host countries and concerns for political stability have overlain economic determinants

home bias and cross border taxation abstract the relationship between cross border taxation and free float home bias is examined this explicitly recognizes that insider shares are unavailable to foreigners other important explanations for home bias information asymmetry behavioural and governance issues are controlled when examining the impact of cross border tax variables in our sample of countries about sixty percent eighty percent withhold taxes on realized capital gains dividends of foreign investors and about thirty percent of the mature economies provide imputation of taxes paid on dividend income by domestic corporations dividend imputation is a statistically significant impediment to cross border equity flows a tax credit variable for foreign taxes paid on dividends is constructed and found to be statistically significant in reducing home bias a relatively high foreign tax rate that cannot be offset by tax credits is found to significantly increase home bias these results hold for float adjusted home bias and traditional international portfolio home bias

macroeconomic linkages taxes and subsidies in the u s agricultural sector lj ar division of agricultural sciences unlversily of califorj ha ma croecono nc linkages t xes and subsidies in tiie u s agr cuttural secl or by gordon c rausser james a chalfant h alan love and kostas g stamoulis tt r i f r in i jq lifor ia agricultura experiment station clmoation of j gricultural economics january 1986

foreign direct investment intra firm trade and ownership structure abstract asymmetric information about true opportunity cost in trade between a multinational and its foreign affiliate can alleviate the hold up problem in foreign direct investment selling shares in the affiliate to locals is also beneficial because it increases the parent multinational s information rent that is protected from a host government s confiscatory taxation

international business alliance under asymmetric information technology vis a vis information advantage author affiliation chifeng dai daic siu edusajal lahiri lahiri siu edu corresponding author acknowledgment we are grateful to two anonymous referees for extremely helpful comments and suggestions 1 introductioninternational inter firm business cooperation as a means to reach a foreign marketplace has been rapidly increasing in popularity and has been growing hand in hand with the overall process of globalization business collaborations in general take different forms licensing franchising and joint venture jv are two important forms of this collaboration the exact nature of the contract between firms can also take different forms involving one or more of the following up front licensing fees equity investments annual maintenance fees milestone payments and royalties 1 for example under the jv agreement between generex biotechnology canada and sejong capital korea sejong agrees to invest 25 million in the jv as a non refundable license fee paid to generex and to purchase 5 million of generex s equity under the jv agreement between cambridge biostability united kingdom and panacea biotec india panacea purchased 1 935 million of cambridge s equity up front and signed a long term licensing agreement that provides gross royalty income to cambridge over the agreement period 2apart from the contractual arrangements another important issue in international business cooperation is the question of transfer or adaptation of technology for the international alliance ia and this has received a lot of attention in the literature see for example katz rebentisch and allen 1996 it is generally agreed that the technology adaptation issue is a rather complicated engineering and economic issue and often requires significant efforts there are four broad research questions here first why do firms from developing and industrialized countries form an alliance miller et al 1997 studied 76 ias in six developing countries they found that more than 65 of the foreign companies chose domestic partners because of their knowledge of local politics government regulations local custom and local markets and more than 70 of the domestic firms in developing countries sought collaboration with multinationals based on their superior technology the second question involves why ias have diverse contractual arrangements the third question involves how each firm s advantage and disadvantage in technology and market information affect their profits in ias do firms in the alliance always prefer more market information and better technology the final question has to do with whether technology spillover hinders the formation of an ia 3in order to answer some of the research questions outlined above we consider a simple model consisting of two firms a multinational corporation mnc and a domestic firm the firms operate under uncertain market demand the mnc possesses a production technology that is superior to that of the domestic firm however the domestic firm has an information advantage in the sense that with costly and non contractable efforts it can predict demand conditions with some probability we start with the case in which the credit market is perfect and the technology adaptation in the ia is exogenous and costless we show that in the ia the mnc optimally charges the domestic firm a lump sum payment but offers it the entire profits of the ia under the contractual arrangement market uncertainty and the domestic firm s ability to gather information increase the domestic firm s profits but not the mnc s profits in ia however the mnc prefers duopoly competition to ia if the technology adaptation is imperfect and the domestic firm s production technology is exceedingly inferior we then deviate from the benchmark case in two different directions but one at a time

repatriation taxes repatriation strategies and multinational financial policy abstract several investment repatriation strategies are added to the standard model of a multinational in which an affiliate is located in a low tax country and is limited to two alternatives repatriating taxable dividends to the parent or investing in its own real operations in our model affiliates can invest in passive assets which the parent can borrow against or in related affiliates which can be used as vehicles for tax favored repatriations we show analytically how the availability of alternative strategies can effect real investment throughout the worldwide corporation we use firm level data for us multinationals to test for the importance of alternative strategies the evidence is generally consistent with the theory particularly the strategies using related affiliates

economic growth and the changing structure of trade and production in the pacific rim growth have been in the range of 6 7 young during this period production and trade patterns in the pacific basin have undergone profound structural changes in the last two decades south korea has moved from the production of labor intensive manufactures to more capital and skill intensive sectors thailand traditionally an exporter of natural resource based commodities showed a sharp fall in its export share of agriculture and a sharp rise in the share of manufactures such as textiles and simple electronics gehlhar in contrast while the importance of agriculture in total north american output has fallen its share in exports has remained stable in recent years as export volumes continue to increase the growth of total east asian exports naturally coincides with rapid import growth in order to expand their manufacturing capacity east asian countries have imported massive amounts of capital equipment but expansion of the manufacturing sector also pulls labor away from agriculture at the very time income growth is leading to increased per capita food demands therefore we have seen a strong rise in the demand for farm and food imports in east asia indeed during the 1980s this region emerged as the fastest growing market for agricultural commodities accounting for the bulk of the increase in u s exports usda 1993a

international corporate tax avoidance a review of the channels magnitudes and blind spots this paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations it surveys evidence on main channels of corporate tax avoidance including transfer mispricing international debt shifting treaty shopping tax deferral and corporate inversions moreover it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting we find that the literature suggests that for the most recent year a 1 percentage point lower corporate tax rate compared to other countries will expand before tax income by 1 5 percent an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time the literature on tax avoidance still has several unresolved puzzles and blind spots that require further research

the economics of joint ventures in less developed countries the paper examines the microeconomic partial equilibrium behavior of joint ventures established between transnational corporations and domestic partners in less developed countries it focuses on issues relating to resource allocation and profit distribution under various institutional scenarios the analysis places special emphasis on the role of bargaining power transfer pricing stock ownership and profit shares of the parties and the responsiveness of joint ventures to national development goals some of the results apply to wholly owned subsidiaries of transnational corporations local firms and licensing arrangements which emerge as special cases

determinants of target capital structure the case of dual debt and equity issues abstract we examine whether market and operating performance affect corporate financing behavior because they are related to target leverage our focus on firms that issue both debt and equity enhances our ability to draw inferences consistent with dynamic trade off theories dual issuers offset the deviation from the target resulting from accumulation of earnings and losses our results also imply that high market to book firms have low target debt ratios on the other hand consistent with market timing high stock returns increase the probability of equity issuance but have no effect on target leverage

do taxes affect corporate debt policy evidence from us corporate tax return data abstract this paper uses u s statistics of income soi corporate income tax returns balance sheet data on all corporations to estimate the effects of changes in corporate tax rates on the debt policies of firms of different sizes small firms face very different tax rates than larger firms and relative tax rates have also changed frequently over time providing substantial information to identify tax effects the results suggest that taxes have had a strong and statistically significant effect on debt levels for example cutting the corporate tax rate by ten percentage points e g from 46 to 36 holding personal tax rates fixed is forecast to reduce the fraction of assets financed with debt by around 3 5 since small firms normally rely much more heavily on debt finance yet face much lower tax incentives to use debt the estimated effect of taxes would be strongly biased downwards without controls for firm size

do swedish multinationals pay less in taxes than domestic firms in recent years there has been growing concern that multinational enterprises mnes engage in strategic tax planning in order to shift profits to low tax jurisdictions this common perception is generally confirmed by empirical evidence which is foremost provided for countries with high corporate taxes and relatively complex tax systems we investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting we do this by using detailed census data from corporate income statements and balance sheets filed by swedish manufacturing firms between 1997 and 2007 many previous studies have used tax rate differences to identify profit shifting these studies however run the risk of overestimating the amount of tax shifting as this method entangles tax planning activities with the effect a lower corporate tax rate has on resulting profits we avoid this by comparing mnes with domestic firms unable to benefit from other tax jurisdictions in particular we identify systematic differences in tax payments earnings before interest and taxes and equity ratios between multinational and comparable domestic firms based on propensity score matching in addition we examine the tax behavioral impact of acquiring multinational status using difference in differences estimations and or propensity score matching our results reveal that the extent to which multinational firms have lower tax payments than their domestic counterparts depends on their production characteristics and foreign market outreach in particular we find evidence indicating that firms operating in few foreign markets and firms that become multinational engage in profit shifting from sweden less

taxation and capital structure choice evidence from a panel of german multinationals this paper analyzes the impact of taxes and lending conditions on the financial structure of multinationals foreign affiliates the empirical analysis employs a large panel of affiliates of german multinationals in 26 countries in the period from 1996 until 2003 in accordance with the theoretical predictions the effect of local taxes on leverage is positive for both types of debt moreover while adverse local credit market conditions are found to reduce external borrowing internal debt is increasing supporting the view that the two channels of debt finance are substitutes

joint venture buy outs under uncertainty this paper provides a theory of joint venture buy outs in the presence of demand uncertainty in an infinite horizon framework with demand uncertainty we consider a foreign firm s decision on whether to form a joint venture or to open a fully owned subsidiary without the possibility of future share adjustment the foreign firm enters the market through a joint venture if the host country firm helps to reduce the uncertainty significantly consequently the firm enters at an earlier point in time compared to the situation in which opening a fully owned subsidiary is the only option to the firm the possibility of future share adjustment in the joint venture further increases the incentive to speed up foreign investment although the possibility of share adjustment results in a joint venture buy out and can reduce the future profits of the host country firm it may increase host country welfare by attracting foreign investment at an earlier point in time we show the implications of learning in the joint venture 2011 the authors the journal of industrial economics

corporate taxation debt financing and foreign plant ownership this paper compares domestically and foreign owned plants with respect to their debt to assets ratio and analyzes to which extent the difference is systematically affected by corporate taxation to derive hypotheses about influence of corporate taxation on a firm s debt financing we adapt a standard model of taxation and financing decisions of firms for the case of international debt shifting activities of foreign owned firms we estimate the average difference between a foreign owned and a domestically owned firm s debt ratio treating the mode of ownership as endogenous using data from 32 067 european firms we find that foreign owned firms on average exhibit a significantly higher debt ratio than their domestically owned counterparts in the host country moreover this gap in the debt ratio increases with the host country s statutory corporate tax rate

a new data set measuring income inequality this article presents a new data set on inequality in the distribution of income the authors explain the criteria they applied in selecting data on gini coefficients and on individual quintile groups income shares comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage although differences in the definition of the underlying data might still affect inter temporal and international comparability based on this new data set the authors do not find a systematic link between growth and changes in aggregate inequality they do find a strong positive relationship between growth and reduction of poverty

economic growth and world food insecurity a parametric approach abstract this paper focuses on the feasibility of reducing the number of individuals that are food insecure to about 700 million by 2015 a sufficient statistic to characterize the level and distribution of income in 134 countries is developed and regressed on variables hypothesized to be its major determinants a global general equilibrium model is then calibrated to data and experiments performed that change the levels of these variables the results show that attaining the 700 million target is feasible but unlikely growth in economy wide total factor productivity agricultural factor productivity and labor productivity is analyzed

effects of the monetary macro economy on canadian agricultural prices this paper examines the importance of monetary macro economic variables on canadian agricultural prices using vector autoregressive var modeling the research results suggest that u s monetary macro economic policy as represented by the u s world exchange rate is the most significant monetary factor influencing canadian agricultural price instability the paper also examined how agricultural prices and manufactures prices respond to a monetary shock the results suggest that agricultural prices respond more quickly in the short run but that manufactures prices catch up in later periods this conclusion supports bordos contract length hypothesis and frankel s overshooting hypothesis it does not support tweeten s cost price squeeze hypothesis

foreign subsidiary transfer pricing and tariffs in the transfer pricing literature horst 12 concludes that the multinational firm mnf will generally charge a low transfer price ltp while other authors are ambivalent on this question this paper shows that less than whole ownership over the subsidiary generally makes the mnf change its transfer pricing strategy from desiring a ltp to wanting a high transfer price htp the conditions for an htp are fairly broad so that we are more likely to observe it than has been suggested in the literature the mnf literature also presumes that the host country loses revenue due to an htp however this view ignores the effects of tariffs on a government s revenue if tariff revenue is included an htp can increase the host country s revenue

cross border loss offset can fuel tax competition following recent court rulings cross border loss compensation for multinational firms has become a major policy issue in europe this paper analyzes the effects of introducing a coordinated cross border tax relief in a setting where multinational firms choose the size of a risky investment and host countries non cooperatively choose tax rates we show that coordinated cross border loss compensation may intensify tax competition when following current international practice the parent firm s home country bases the tax rebate for a loss making subsidiary on its own tax rate in equilibrium tax revenue losses may thus be even higher than is implied by the direct effect of the reform in contrast tax competition is mitigated when the home country bases its loss relief on the tax rate in the subsidiary s host country

impacts of trade and macroeconomic linkages on canadian agriculture implications of trade and macroeconomic policies on the performance of the canadian agricultural sector were analyzed using a structural econometric model results indicated that had canada been more integrated with the world economy its volume of trade would have been 3 higher than its actual level and much greater price incentives for agriculture would have occurred

saving taxes through foreign plant ownership this paper analyzes to which extent foreign plant ownership involves lower tax payments than domestic plant ownership we employ a model of endogenous foreign subsidiary ownership to derive a set of empirically testable hypotheses about the differential taxation of foreign and domestically owned subsidiaries we assess these hypotheses in a data set of 33 577 european foreign and domestically owned manufacturing plants we identify a significant tax saving of endogenous foreign owner ship on average foreign owners pay 594 euros per employee or about 56 percent less than domestic owners of similar subsidiaries this effect is larger in thinner markets with fewer plants in markets with a greater relative presence of foreign owners and for foreign owners of larger plants

the effect of the tax reform act of 1986 on the location of assets in financial services firms this paper examines the effects of the tax reform act of 1986 on the international location decisions of u s financial services firms the act included rule changes that made it substantially more difficult for u s firms to defer u s taxes on overseas financial services income held in low tax jurisdictions we use information from the tax returns of u s corporations to examine how local taxes affect the allocation of financial assets held abroad by financial services firms we find that before the act the location of reported assets in financial subsidiaries was responsive to differences in host country tax rates across jurisdictions however after the act differences in host country tax rates no longer explain the distribution of assets held in financial services subsidiaries abroad our results suggest that the tightening of the anti deferral provisions applicable to financial services companies has been successful in diminishing the effect of host country income taxes on asset location decisions

the taxation of passive foreign investment lessons from german experience the paper evaluates the working of german cfc rules that restrict the use of foreign subsidiaries located in low tax countries to shelter passive investment income from home taxation while passive investments make up a significant fraction of german outbound fdi we find that german cfc rules are quite effective in restricting investments in low tax jurisdictions we find evidence that the german 2001 tax reform which unilaterally introduced exemption of passive income in medium and high tax countries has led to some shifting of passive assets into countries for which the exemption was previously limited ce texte evalue l impact des regles imposees aux succursales a l etranger des societes allemandes regles qui limitent l usage de filiales etrangeres localisees dans des pays a fiscalite legere pour mettre les revenus d investissement passif a l abri de la fiscalite dans le pays d origine ces investissements passifs constituent une fraction significative de l investissement direct a l etranger des allemands et on decouvre que les regles allemandes sont tres efficaces pour restreindre les investissements dans des economies a fiscalite legere les resultats montrent que la reforme fiscale allemande de 2001 qui a unilateralement introduit une exemption du revenu passif dans les pays a fiscalite medium or lourde a entraine un deplacement des actifs passifs vers les pays pour lesquels l exemption etait limitee auparavant

immobilizing corporate income shifting should it be safe to strip in the harbor abstract many subsidiaries can deduct interest payments on internal debt from their taxable income by issuing internal debt from a tax haven multinationals can shift income out of host countries through the interest rates they charge and the amount of internal debt they issue we show that from a welfare perspective thin capitalization rules that restrict the amount of debt for which interest is tax deductible safe harbor rules are inferior to rules that limit the ratio of debt interest to pre tax earnings earnings stripping rules even if a safe harbor rule is used in conjunction with an earnings stripping rule

macroeconomic determinants of the world trade disputes this article is whether and how the world macroeconomic environments influence the world trade disputes we use two pronged approach first we try to answer the question whether and how global macroeconomic environments are attached to the count of the world trade disputes even if the traditional literature captures it at the national level global picture needs to be completed the second question we address is that given the set of trade dispute initiating countries whether and how differently high middle and low income countries respond to their macroeconomic environments in their decision makings of trade disputes initiations the universe in the second question is a selected set of the filing countries only not all countries on this planet one can capture the behaviours of the countries involved in the trade disputes under certain macroeconomic circumstances the period is from 1995 to 2008 covering all records of trade disputes since the birth of the world trade organization wto

the impact of controlled foreign company legislation on real investments abroad a multi dimensional regression discontinuity design controlled foreign company cfc rules are frequently imposed by countries as part of their anti tax avoidance legislation this paper aims at quantifying the impact of the german cfc rule on the universe of foreign investments held by german multinational firms the german cfc legislation gives rise to a multi dimensional regression discontinuity design which allows us to estimate local average treatment effects along the dimensions determining treatment our results suggest a significant and economically large impact of the cfc legislation on multinationals real activity abroad we also find evidence of some heterogeneity in estimated treatment effects according to parametric as well as nonparametric estimates

cross jurisdictional income shifting by u s multinationals evidence from international bond offerings we examine whether tax incentives influence where u s multinationals locate their interest deductions worldwide our sample includes international bond offerings by u s multinationals during 1987 1997 denominated in the currencies of australia canada france germany italy japan or the united kingdom our results suggest that u s multinationals debt location decisions take into account the effect of jurisdiction specific tax loss carryforwards and binding foreign tax credit limitations on the value of debt tax shields our results are also consistent with u s multinationals locating interest deductions in different tax jurisdictions as a mechanism to achieve tax motivated income shifting

optimal regulation of mnes and government revenues the paper analyses the optimal regulation of multinational enterprises mnes by a host government interested in maximizing tax revenues when the mne has private information about its benefits of controlling the enterprise it is shown that the optimal mechanism involves restricting the mnes ownership of the enterprise and setting a ceiling on the transfer price of an input that the mne provides that is above the known production cost of the input for low realizations of the benefits of control the mne transfers control to a domestic partner while for high realizations it retains control

unobserved tax avoidance and the tax elasticity of fdi abstract this paper investigates the tax responsiveness of multinational firms investment decisions in foreign countries distinguishing firms that are able to avoid taxes avoiders from those that are not non avoiders from a theoretical point of view the tax responsiveness of firms crucially depends on this distinction empirically however a firm s ability to avoid profit taxes is inherently unobservable to the researcher to address this problem we use a finite mixture modeling approach which allows us to distinguish avoiders from non avoiders stochastically from a mixture of distributions of the two types of firms using panel data on the universe of foreign affiliates of german multinational firms over the years 1999 2010 we find that investments of tax avoiders do not respond to host country profit taxes at all while those of non avoiders do about 11 of the affiliates are estimated to be able to avoid taxes these investments account for about 58 of the stock of foreign fixed assets held by german multinational firms abroad a one percentage point increase in the statutory corporate profit tax rate of a host country is found to reduce the fixed assets of non avoiders in that host country by 0 81

income shifting investment and tax competition theory and evidence from provincial taxation in canada abstract we study corporate income taxation when firms operating in multiple jurisdictions can shift income using tax planning strategies because income of corporate groups is not consolidated for tax purposes in canada firms may use financial techniques such as lending among affiliates to reduce subnational corporate taxes a simple theoretical model shows how income shifting affects real investment government revenues and tax base elasticities depending on whether firms must allocate income to provinces or not we then analyze data from administrative tax records to compare the behavior of corporate subsidiaries that may engage in income shifting to comparable firms that must use the statutory allocation formula to determine their taxable income in each province the evidence suggests that income shifting has pronounced effects on provincial tax bases according to our preferred estimate the elasticity of taxable income with respect to tax rates for income shifting firms is 4 9 compared with 2 3 for other comparable firms

why countries differ in thin capitalization rules the role of financial development abstract the purpose of thin capitalization rules is to limit multinational firms possibilities of engaging in tax planning via debt shifting this paper analyzes the optimal design of thin capitalization rules in the presence of financial frictions when a host country in the first stage chooses the type of thin capitalization rule and then in the second stage decides about the strictness we show that welfare under a safe haven rule is higher than under an earnings stripping rule if firms are not able to manipulate the interest rate on internal loans welfare however can be higher under an earnings stripping rule if firms are able to manipulate the interest rate on internal loans we also show that the optimal level of internal interest deductions decreases with the financial development of the host country our results are consistent with countries actual policy choice

capital market imperfections and forms of foreign operations abstract we develop a model of foreign operations to determine a parent firm s choice between wholly owned subsidiaries and joint ventures and the degree of equity participation in the latter case we introduce capital market imperfections into the model to capture a positive effect of the firm s net worth on investment this effect plays an important role in determining organization forms because the investment level affects the optimal form which determines technology transfer we show that parent firms with strong technological advantages can be controlling shareholders even if they take minority positions in ventures with local firms

proxies for the corporate marginal tax rate abstract this paper focuses on how best to measure the corporate marginal tax rate which is an important input into financial analysis of the cost of capital financing policy corporate hedging and corporate reorganizations the results indicate that the simulated tax rate used by shevlin 1990 and graham 1996 although difficult to calculate is the best available proxy for the true marginal tax rate if the simulated rate is unavailable an easy to calculate trichotomous variable or the statutory marginal tax rate which captures the progressivity in the tax schedule are reasonable alternatives better than most commonly used tax variables

multinational firms and government revenues abstract underinvoicing of intrafirm exports by a multinational firm mnf can increase the exporting country s revenue overinvoicing can increase the importing country s revenue when its tariff rate is higher than its profit tax rate and both countries revenues may change in the same direction transfer pricing increases the mnf s global tax burden unambiguously when the home profit tax rate is not smaller than the foreign and the mnf overinvoices and can increase it in other cases this last result arises when increase in the level of intrafirm trade which accompanies transfer pricing and or non wholly owned subsidiary are considered

an evaluation of alternative measures of corporate tax rates abstract this paper examines the ability of financial statement measures of average and marginal tax rates mtr to capture tax attributes utilizing firm level tax and financial data the results suggest commonly used average tax rate measures provide little insight about statutory tax burdens and may introduce substantial bias into analyses of tax incidence financial statement based proxies for mtr particularly those based on simulation methods are found to perform well in estimating current year tax rates both current year and present value mtr are found to be highly correlated with an easily constructed binary proxy of firms tax status

internal versus external capital markets this paper presents a framework for analyzing the costs and benefits of internal versus external capital allocation we focus pritnarily on comparing an internal capital market with bank lending while both represent centralized forms of financing in the former case the financing is owner provided while in the latter ceise it is not we argue that the ownership aspect of internal capital allocation has three important consequences 1 it leads to more monitoring than bank lending 2 it reduces managers entrepreneurial incentives and 3 it makes it easier to efficiently redeploy the assets of projects that are performing poorly under existing management

debt shifting and ownership structure abstract previous theoretical studies on the debt shifting behavior of multinationals have assumed affiliates of multinationals to be wholly owned we develop a model that allows a multinational firm to determine both the leverage and ownership structure in affiliates endogenously a main finding is that affiliates with minority owners have less debt than wholly owned affiliates and therefore a less tax efficient financing structure this is due to an externality that arises endogenously in our model where costs and benefits of debt shifting are shared asymmetrically between minority and majority owners our findings provide a theory framework for recent empirical findings

double tax discrimination to attract fdi and fight profit shifting the role of cfc rules abstract governments worldwide use targeted tax policies to trade off the gains from increased fdi against the cost of excessive profit shifting by multinational firms we show that nationally optimal tax systems generally incorporate both thin capitalization rules which tax discriminate between purely national and multinational firms and controlled foreign company cfc rules which discriminate between home based and foreign based multinationals in the non cooperative policy equilibrium both thin capitalization rules and cfc rules are set more lenient than if tax policies were chosen cooperatively implying an excessive tax discrimination in favor of multinationals we also analyze the effects of reduced transaction costs for fdi and reduced costs for debt shifting on the optimal policy mix our results correspond to the observed developments of anti avoidance rules in oecd countries

evaluating the effects of ace systems on multinational debt financing and investment abstract theory recommends aligning the tax treatment of debt and equity a few countries notably belgium have introduced an allowance for corporate equity ace to achieve tax neutrality we study the effects of adopting an ace on debt financing passive investment and active investment of multinational firms using high quality administrative data on virtually all german based multinationals we use two main identification strategies based on 1 synthetic control methods and 2 variations across affiliates within the multinational group our results suggest that an ace reduces the corporate debt ratio of multinational affiliates additionally an ace increases intra group lending and other forms of passive investment but has no effects on production investment of multinational affiliates the findings indicate that a unilateral implementation of an ace system generates a tax planning opportunity using a structure combining the benefits from the ace with interest deductions

technical compatibility and the mode of foreign entry with network externalities we examine the preferences of a foreign firm and a local government over two modes of foreign direct investment de novo entry and acquisition of the domestic incumbent two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology the relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality the clash between the foreign firm s choice and the local government s ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm ce texte examine les preferences d une firme etrangere et d un gouvernement du pays hote quant a deux modes d investissement direct de l etranger entree de novo de la firme etrangere versus acquisition d une firme domestique en place deux facteurs pris en compte sont la presence d externalites de reseau et d incompatibilite partielle entre la technologie locale et celle introduite par la firme etrangere l impact relatif des modes d entree sur le mieux etre local depend du degre de concurrence sur le marche et de l importance des externalites de reseau le conflit entre les preferences de l entreprise etrangere et les preferences du gouvernement local peuvent etre a la source de politiques qui limitent le degre de proprieteetrangere permis

multinational firms and tax havens multinational firms with operations in high tax countries can benefit the most from reallocating taxable income to tax havens though this is sufficiently difficult and costly that only 20 4 of german multinational firms have any tax haven affiliates among german manufacturing firms a 1 percentage point higher foreign tax rate is associated with a 2 3 greater likelihood of owning a tax haven affiliate this is consistent with tax avoidance incentives and contrasts with earlier evidence for u s firms the relationship is less strong for firms in service industries possibly reflecting the difficulty of reallocating taxable service income