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Cost Sharing Arrangements and Income Shifting

Author

Listed:
  • De Simone, Lisa

    (Stanford University)

  • Sansing, Richard

    (Dartmouth College and CentER, Tilburg University)

Abstract

This study investigates the cost sharing arrangement (CSA), which is a mechanism used by multinational corporations (MNCs) to shift valuable intellectual property (IP) offshore to low-tax jurisdictions. We find that a CSA enables the MNC to shift income to low-tax foreign jurisdictions when the effect of domestic marketing intangibles on foreign income exceeds the effect of foreign marketing intangibles on domestic income. We also find that a CSA is less attractive if payments for the use of IP are not based on the fair market value of that IP. If the MNC can understate the value, it prefers to sell domestically developed IP to a foreign subsidiary, which in turn will develop the IP. If the tax authority can overstate the value by imposing retroactive revaluations of the IP, the MNC prefers to develop the IP domestically.

Suggested Citation

  • De Simone, Lisa & Sansing, Richard, 2014. "Cost Sharing Arrangements and Income Shifting," Research Papers 3250, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3250
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    File URL: http://www.gsb.stanford.edu/faculty-research/working-papers/cost-sharing-arrangements-income-shifting
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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