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Multijurisdictional Firms and Governments’ Strategies under Alternative Tax Designs

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  • Marcel Gérard

Abstract

Conducted in a framework which embodies tax-shifting opportunities, risk of losses and possibility of interjurisdictional loss-offset, this paper investigates a reform of multijurisdictional enterprises taxation, a move from Separate Accounting to Formulary Apportionment. Findings are summarised in a series of propositions on the strategic behaviour of enterprises and authorities. Under Separate Accounting, tax-shifting opportunities reduce investment in the lower-taxing jurisdiction, tax sensitivity of investment and tax competition. Moving to Formulary Apportionment eliminates such opportunities, pushing the economy in the opposite direction. Permitting the firm to compensate losses among affiliates allows it to benefit from a tax-shifting and insurance device.

Suggested Citation

  • Marcel Gérard, 2005. "Multijurisdictional Firms and Governments’ Strategies under Alternative Tax Designs," CESifo Working Paper Series 1527, CESifo.
    • Handle: RePEc:ces:ceswps:_1527
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp1527.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Wolfgang Eggert & Andreas Haufler, 2006. "Company-Tax Coordination cum Tax-Rate Competition in the European Union," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(4), pages 579-601, December.
    2. Bucovetsky, Sam & Haufler, Andreas, 2008. "Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed," Journal of International Economics, Elsevier, vol. 74(1), pages 188-201, January.
    3. Marcel Gérard, 2006. "Reforming the taxation of multijurisdictional enterprises in Europe: a tentative appraisal," European Economy - Economic Papers 2008 - 2015 265, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. Marcel Gerard, 2006. "Reforming the taxation of Multijurisdictional Enterprises in Europe, "Coopetition" in a Bottom-up Federation," Working Papers 2006-10, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
    5. Martini, Jan Thomas & Niemann, Rainer & Simons, Dirk, 2007. "Transfer pricing or formula apportionment? Tax-induced distortions of multinationals' investment and production decisions," arqus Discussion Papers in Quantitative Tax Research 27, arqus - Arbeitskreis Quantitative Steuerlehre.
    6. Gaëtan Nicodème, 2006. "Corporate tax competition and coordination in the European Union: What do we know? Where do we stand?," European Economy - Economic Papers 2008 - 2015 250, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    7. Marco Runkel & Guttorm Schjelderup, 2011. "The Choice Of Apportionment Factors Under Formula Apportionment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 913-934, August.
    8. Eichner, Thomas & Runkel, Marco, 2009. "Corporate income taxation of multinationals and unemployment," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 610-620, September.
    9. Jan Thomas Martini & Rainer Niemann & Dirk Simons, 2007. "Transfer Pricing or Formula Apportionment? Tax-Induced Distortions of Multinationals’ Investment and Production Decisions," CESifo Working Paper Series 2020, CESifo.
    10. Ana Agundez-Garcia, 2006. "The Delineation and Apportionment of an EU Consolidated Tax Base for Multi-jurisdictional Corporate Income Taxation: a Review of Issues and Options," Taxation Papers 9, Directorate General Taxation and Customs Union, European Commission, revised Oct 2006.

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    Keywords

    multijurisdictional enterprise; separate accounting; formulary apportionment; cross-border loss offset;
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