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Optimal Policies against Profit Shifting: The Role of Controlled-Foreign-Company Rules

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Listed:
  • Andreas Haufler
  • Mohammed Mardan
  • Dirk Schindler

Abstract

By introducing controlled-foreign-company (CFC) rules, the parent country of a multinational firm reserves the right to tax the income of the firm’s foreign affiliates if the tax rate in the affiliate’s host country is below a specified threshold. We identify the conditions under which binding CFC rules are part of the optimal tax mix when governments can set the statutory tax rate, a thin capitalization rule and the CFC rule. We also analyze the effects of economic and financial integration on the optimal policy mix. Our results correspond to the actual development of anti-avoidance rules in OECD countries.

Suggested Citation

  • Andreas Haufler & Mohammed Mardan & Dirk Schindler, 2016. "Optimal Policies against Profit Shifting: The Role of Controlled-Foreign-Company Rules," CESifo Working Paper Series 5850, CESifo.
    • Handle: RePEc:ces:ceswps:_5850
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    References listed on IDEAS

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    More about this item

    Keywords

    multinationals; profit shifting; controlled foreign company rules; thin capitalization rules;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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