We examine the capital structures of multinational companies. 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 omitted either...

There is a growing concern that governments lose substantial corporate tax revenue because of profit shifting through transfer-pricing and thin-capitalization strategies. Existing literature studies profit shifting and transfer pricing separately. In practice, the choice of debt-to-asset ratios...

There is a growing concern that governments lose substantial corporate tax revenue due to transfer pricing and debt shifting strategies. Existing literature studies debt shifting and transfer pricing separately. In practice, however, the choice of debt-to-asset ratios in affiliates and the...

Previous theoretical studies on the debt shifting behavior of multinationals have assumed affiliates of multinationals to be wholly owned. We develop a model that allows a multinational firm to determine both the leverage and ownership structure in affiliates endogenously. A main finding is that...

Multinational companies can exploit the tax advantage of debt more aggressively than national companies. Besides utilizing the standard debt tax shield, multinationals can shift debt from affiliates in low-tax countries to affiliates in high-tax countries. We study the capital structure of...

The OECD in its BEPS action plan 4 addresses tax base erosion by profit shifting through the use of tax deductible interest payments. Their main concern is interest deductions between outbound and inbound investment by groups. Studies of multinational firms show that the tax sensitivity of debt...

This paper discusses trends in capital taxation and the role of the corporate tax rate in a welfare state. It provides a summary of the tax competition literature with special application to capital taxation in small versus large countries. A main finding from this literature is that small...

Multinational firms are known to shift profits and countries are known to compete over shifty profits. Two major principles for corporate taxation are Separate Accounting (SA) and Formula Apportionment (FA). These two principles have very different qualities when it comes to preventing profit...

This paper analyses the development of the ratio of corporate taxes to wage taxes using a simple political economy model with internationally mobile and immobile firms. Among other results, our model predicts that countries reduce their corporate tax rate, relative to the wage tax, either when...

The rise in foreign direct investment and the increasing activity of multinational firms expose national corporate tax bases to cross-country profit shifting, but also lead to rising profitability of the corporate sector. We incorporate these two effects of economic integration into a simple...