Investment and Financing Strategy of a Multinational Enterprise Under Alternative Tax Designs

24 Pages Posted: 19 Jun 2012

See all articles by Marcel Gerard

Marcel Gerard

Facultes Universitaires Catholiques de Mons (FUCAM); CESifo (Center for Economic Studies and Ifo Institute)

Savina Princen

Catholic University of Louvain (UCL) - Faculty of Economic, Social and Political Sciences

Date Written: June 19, 2012

Abstract

This paper investigates the consequences of a series of alternative international tax designs on the strategy of a multinational enterprise regarding the cross border distribution of its investment and the choice of its financing behavior. We start with a world where no international tax rules are at work. Then we successively introduce (i) the rules provided by the OECD Model Tax Convention, (ii) the EU Parent-Subsidiary Directive of July 23, 1990; and (iii) a combination of Allowance for Corporate Equity (ACE) and Comprehensive Business Income Tax (CBIT). Finally, we leave systems based on Separate Accounting (SA) aside and turn to Consolidation and Formulary Apportionment (C&FA) adopted either by all the jurisdictions at work in the model, or by a sole subset of them within the framework of an Enhanced Cooperation Agreement (ECA).

Keywords: corporate tax, multinational firms, MNE

JEL Classification: F230, H250, K340

Suggested Citation

Gerard, Marcel and Princen, Savina, Investment and Financing Strategy of a Multinational Enterprise Under Alternative Tax Designs (June 19, 2012). CESifo Working Paper Series No. 3838. Available at SSRN: https://ssrn.com/abstract=2087556

Marcel Gerard (Contact Author)

Facultes Universitaires Catholiques de Mons (FUCAM) ( email )

Chaussee de Binche, 151
Mons 7000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Savina Princen

Catholic University of Louvain (UCL) - Faculty of Economic, Social and Political Sciences ( email )

B-1348 Louvain-la-Neuve
Belgium

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