Profit Shifting and Investment Effects: The Implications of Zero-Taxable Profits
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Author / Producer
Date
2018-02
Publication Type
Working Paper
ETH Bibliography
yes
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Abstract
Recent empirical research documents a tendency of affiliates of multinational enterprises to bunch around zero reported profit. Setting up a model that allows for profitable and loss-making affiliates of multinationals, we show that profit shifting to a low-tax country as well as a loss-related, inverted-type of transfer pricing from the low-tax to the high-tax country induces bunching. Such bunching promotes investment incentives in the low-tax as well as the high-tax country. In equilibrium, affiliates might over-invest and the bunching-related investment effects generate a tendency for too high profit taxes in equilibrium. The finding contrasts existing literature where transfer pricing incentives are insulated from investment incentives and transfer pricing induces inefficiently low taxes
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published
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Journal / series
Volume
6895
Pages / Article No.
Publisher
CESifo
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Date collected
Date created
Subject
tax competition, profit shifting, corporate losses, bunching, investment
Organisational unit
03988 - Köthenbürger, Marko / Köthenbürger, Marko
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
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