Multinational corporations can shift income into low-tax countries through transfer pricing and debt financing. While most developed countries use thin capitalization rules to limit the extent to which a subsidiary can be financed with internal debt, a number of developing countries do not. In...

This paper presents a theory model that simultaneously accounts for the financing decisions and ownership structure in affiliates of multinational firms. We find that affiliates of multinationals have higher internal and overall debt ratios and lower rental rates of physical capital than...

Multinational companies can exploit the tax advantage of debt more aggressively than national companies by shifting debt from affiliates in low tax countries to affiliates in high tax countries. Previous papers have either omitted internal debt or external debt from the analysis. We are the...

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...

This paper examines the flexibility of multinational firms to use income-shifting strategies within a tax year to react to operating losses. First, we develop an analytical model that considers how affiliate losses can be adjusted by using the transfer prices of tangible and intangible assets,...

We study the link between a country’s institutional quality in tax collection and its optimal corporate tax policies in a model of heterogeneous multinationals that can shift income using both debt and transfer prices. Countries with weak institutional quality can be made worse off adopting...

Some multinationals use the parent company as a lender to the group, whereas others set up an internal bank in a low tax jurisdiction. This paper discusses the link between capital structure choices and tax planning motives in multinational groups. We model the trade-off between the use of...

The increasing use of intellectual property as a means to shift profits to low-tax jurisdictions or jurisdictions with so-called "patent boxes" is a major challenge for the corporate tax base of medium- and high-tax countries. Extending a standard tax competition model for capital-enhancing...

By introducing controlled-foreign-corporation (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. In this paper, we identify the conditions...