Competition for FDI and Profit Shifting

Research output: Working paperResearch

Abstract

When countries compete for the location of a new multinational plant they need to be aware of the profit shifting opportunities this new plant creates for the global multinational firm. By modelling explicitly the multinational’s intra-firm transactions, we show that the home market advantage that large countries have due to their size will be counteracted by such profit shifting opportunities. As a result of this, large countries will not be able to capitalize on their size and sustain high corporate taxes. We show that, on the basis of these profit shifting opportunities, a small country can easily win the location game ahead of a large country. How lenient the small country is in implementing transfer pricing regulations turns out to be an important variable in such location games.
Original languageEnglish
Place of PublicationMünchen
PublisherCESifo Group
Number of pages26
Publication statusPublished - 2015
SeriesCESifo Working Paper
Number5153

Keywords

  • Profit shifting
  • Competition for FDI
  • Location game

Cite this

Ma, J., & Raimondos-Møller, P. (2015). Competition for FDI and Profit Shifting. München: CESifo Group. CESifo Working Paper, No. 5153
Ma, Jie ; Raimondos-Møller, Pascalis. / Competition for FDI and Profit Shifting. München : CESifo Group, 2015. (CESifo Working Paper; No. 5153).
@techreport{039d4590e3894414b5ae8853e7da2c0f,
title = "Competition for FDI and Profit Shifting",
abstract = "When countries compete for the location of a new multinational plant they need to be aware of the profit shifting opportunities this new plant creates for the global multinational firm. By modelling explicitly the multinational’s intra-firm transactions, we show that the home market advantage that large countries have due to their size will be counteracted by such profit shifting opportunities. As a result of this, large countries will not be able to capitalize on their size and sustain high corporate taxes. We show that, on the basis of these profit shifting opportunities, a small country can easily win the location game ahead of a large country. How lenient the small country is in implementing transfer pricing regulations turns out to be an important variable in such location games.",
keywords = "Profit shifting, Competition for FDI, Location game, Profit shifting, Competition for FDI, Location game",
author = "Jie Ma and Pascalis Raimondos-M{\o}ller",
year = "2015",
language = "English",
publisher = "CESifo Group",
address = "Germany",
type = "WorkingPaper",
institution = "CESifo Group",

}

Competition for FDI and Profit Shifting. / Ma, Jie; Raimondos-Møller, Pascalis.

München : CESifo Group, 2015.

Research output: Working paperResearch

TY - UNPB

T1 - Competition for FDI and Profit Shifting

AU - Ma, Jie

AU - Raimondos-Møller, Pascalis

PY - 2015

Y1 - 2015

N2 - When countries compete for the location of a new multinational plant they need to be aware of the profit shifting opportunities this new plant creates for the global multinational firm. By modelling explicitly the multinational’s intra-firm transactions, we show that the home market advantage that large countries have due to their size will be counteracted by such profit shifting opportunities. As a result of this, large countries will not be able to capitalize on their size and sustain high corporate taxes. We show that, on the basis of these profit shifting opportunities, a small country can easily win the location game ahead of a large country. How lenient the small country is in implementing transfer pricing regulations turns out to be an important variable in such location games.

AB - When countries compete for the location of a new multinational plant they need to be aware of the profit shifting opportunities this new plant creates for the global multinational firm. By modelling explicitly the multinational’s intra-firm transactions, we show that the home market advantage that large countries have due to their size will be counteracted by such profit shifting opportunities. As a result of this, large countries will not be able to capitalize on their size and sustain high corporate taxes. We show that, on the basis of these profit shifting opportunities, a small country can easily win the location game ahead of a large country. How lenient the small country is in implementing transfer pricing regulations turns out to be an important variable in such location games.

KW - Profit shifting

KW - Competition for FDI

KW - Location game

KW - Profit shifting

KW - Competition for FDI

KW - Location game

M3 - Working paper

BT - Competition for FDI and Profit Shifting

PB - CESifo Group

CY - München

ER -