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Optimal Policies Against Profit Shifting: The Role of Controlled-Foreign-Company Rules

33 Pages Posted: 5 May 2016  

Andreas Haufler

University of Munich - Seminar for Economic Policy; CESifo (Center for Economic Studies and Ifo Institute)

Mohammed Mardan

ETH Zurich; Norwegian Center for Taxation

Dirk Schindler

Norwegian School of Economics (NHH); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 12, 2016

Abstract

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 CFC rules are part of the optimal tax mix when governments can set the statutory tax rate, a thin capitalization rule and the CFC rule. We also analyze the effects of economic and financial integration on the optimal policy mix. Our results correspond to the actual development of anti-avoidance rules in OECD countries.

Keywords: multinationals, profit shifting, controlled foreign company rules, thin capitalization rules

JEL Classification: H250, H730, F230

Suggested Citation

Haufler, Andreas and Mardan, Mohammed and Schindler, Dirk, Optimal Policies Against Profit Shifting: The Role of Controlled-Foreign-Company Rules (April 12, 2016). CESifo Working Paper Series No. 5850. Available at SSRN: https://ssrn.com/abstract=2774635

Andreas Haufler (Contact Author)

University of Munich - Seminar for Economic Policy ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

HOME PAGE: http://www.ecpol.vwl.uni-muenchen.de

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Mohammed Mardan

ETH Zurich ( email )

Leonhardstrasse 21
Zurich, Zurich 8092
Switzerland

Norwegian Center for Taxation ( email )

Helleveien 30
Bergen, Bergen 5045
Norway

Dirk Schindler

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, 5045
Norway

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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