Three Essays on International Taxation of Multinational Enterprises

Profit shifting by multinational enterprises (MNEs) causes considerable tax revenues losses globally. This thesis focuses on several developments of anti-avoidance measures, and theoretically investigates their effects on MNEs’ behavior and countries’ corporate taxes. Chapter 1 analyzes tax enforcements coordination and cooperation. We consider a fiscal competition game where the timing of countries’ enforcement decisions is endogenized. Countries differ in market size and tax enforcement productivity (captured by enforcement elasticity of tax revenue). We reveal that the low-enforcement productivity country will be the enforcement leader and will benefit more from enforcement cooperation. Chapter 2 is motivated by the fact that many countries are limiting tax deductibility and using turnover taxes targeted at gross revenues. Our analysis starts from the polar cases: a pure profit tax under separate accounting or formula apportionment, and a turnover tax. We derive conditions under which one tax regime dominates the other two in terms of tax revenue. In the general case of tax deductibility, we show that depending on tax capacity and production technologies, tax deductibility affects countries’ tax revenues very differently. Chapter 3 studies the OECD’s global minimum tax (GMT). Different from the minimum tax literature, we consider both profit shifting and capital investment responses of the MNE. We show that the GMT curbs profit shifting and always benefits the large country. In the short run where countries’ tax rates are fixed, introducing the GMT increases (decreases) the small country’s revenue under high (low) profit shifting cost. In the long run where countries can adjust tax rates, the GMT reshapes international tax competition game and may not bring countries’ tax rates above the minimum rate. Moreover, a marginal GMT reform does not necessarily benefit the small country.