Cross Country Tax Competition and its Impact on Multinational Corporations – a Theoretical Re-examination
Journal Title: Financial Markets, Institutions and Risks - Year 2018, Vol 2, Issue 1
Abstract
The recent wave of globalization has made the global corporations to take advantage of the international tax differences and suitably shift their profits from low tax to high tax jurisdictions. In this paper, we consider a simple world with two countries with different market sizes and n multinationals having a branch in each country. For simplicity, we have considered that both the countries impose a source-based tax on profit of the multinational firms. Moreover, these firms function in a Cournot framework with tax competition between the countries and shift their profit depending on the extent of tax differential. But profit shifting is costly as there is a chance of getting caught. In this backdrop, we propose a simple theoretical model which puts emphasis on the role of concealment of true profits in a framework of tax competition. It is shown that given the similar administrative efficiency across the countries, a higher probability of non-detection indicates that more profits will be declared in the lower tax country. Also, a fall in non-detection probability will reduce the tax revenue but there is a possibility that it might raise the overall revenue collections of the government. So, the focus should not only be on tax revenue per se but on other forms of revenue collections also.
Authors and Affiliations
Sovik Mukherjee
Keywords
Related Articles
- EP ID EP523064
- DOI 10.21272/fmir.2(1).97-104.2018
- Views 85
- Downloads 0
Public Spending and Economic Growth in Developing Countries: a Synthesis
The purpose of this study is to critically analyze the theorical and empirical literature on the relationship between public expenditures and economic growth. This relationship has been source of controversy with liberal...
The Relationship Between the Tax Burden and Financing Public Services: A Comparison of Ukraine and European Countries
he strategy of reforming the country’s tax system should consider the real effect that taxpayers receive in response to their tax payments, that is, the level of financing public services. The article formalizes the link...
Preliminary contemplation on Exchange Value
Exchange Value is a vital term of economics. Exchange Value is born by an exchange process and the exchange process is the life line of the human society. Exchange value gets influenced by various parameters. These param...
The Role of Tax Regulation in Counter-Cyclical Regulation of Banking in Ukraine
The purpose of the article is to determine the role of tax regulation of banking activity and countercyclical regulation of banking activity (on the basis of formalizing the influence of the banking system on the develop...
Prior to the Financial Security through Control over the Use of Public Funds, Assessment Methodology and Practical Experience in Ukraine
The social and political instability in the world actualizes the task of protecting national financial interests from external and internal destabilizing factors, ensuring financial security. Traditionally, one of the si...