Taxing the Multinational Enterprise: On the Forced Redesign of Global Value Chains and other Inefficiencies

Nicolai J. Foss, Ram Mudambi*, Samuele Murtinu

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


The taxation of the multinational enterprise (MNE) has been a continuing concern for policymakers. We argue that the changing nature of the mobile MNE (e.g., its improved ability to fine-slice the value chain and disperse it geographically) makes it increasingly important to rethink current tax policies. First, there should be more focus on the inefficiencies that arise when taxation leads to the inefficient location of MNE activities. Thus, MNEs may shift activities to low-tax jurisdictions that offer lucrative pecuniary and non-pecuniary incentives, but do not enable their investments to maximize their contribution to global value creation. Second, international tax regimes should ensure that MNEs pay for their consumption of local public goods, and public finance scholars have long known that the taxation-based distortions are minimized when the tax objects are immobile. However, the bulk of current tax policies are aimed at corporate profits that are both poor proxies for the consumption of local public goods as well as extremely mobile. Integrating theory from international business, public finance and economic geography, our analysis demonstrates that moving the incidence of taxation from corporate profits to dividends and consumption would unambiguously improve both wealth creation and efficiency.
Original languageEnglish
JournalJournal of International Business Studies
Issue number9
Pages (from-to)1644–1655
Number of pages12
Publication statusPublished - Dec 2019
Externally publishedYes


  • Finance
  • Taxation
  • Corporate profit taxation
  • Transfer pricing
  • Public goods

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