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

Foss, N.J., Mudambi, R., Murtinu, S. Taxing the Multinational Enterprise: On the Forced Redesign of Global Value Chains and Other Inefficiencies. Journal of International Business Studies, forthcoming, doi: 10.1057/s41267-018-0159-3.

Fox School of Business Research Paper No. 18-019

26 Pages Posted: 10 May 2018 Last revised: 15 Aug 2018

Nicolai J. Foss

Bocconi University

Ram Mudambi

Temple University - Department of Strategic Management

Samuele Murtinu

University of Groningen

Date Written: April 25, 2018

Abstract

The taxation of the multinational enterprise (MNE) has been a continuing concern for policy-makers. 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.

Keywords: Tax, Taxation, Multinational Enterprise (MNE), Global Value Chains, Tax Policies, Efficiency, Wealth Creation, Value Creation, International Tax Regimes, Local Public Goods, Corporate Profits, International Business, Public Finance, Economic Geography

JEL Classification: F21, F23, F38, F42, F55, H21, H25, H26, H41, H71, L53, M21

Suggested Citation

Foss, Nicolai J. and Mudambi, Ram and Murtinu, Samuele, Taxing the Multinational Enterprise: On the Forced Redesign of Global Value Chains and Other Inefficiencies (April 25, 2018). Foss, N.J., Mudambi, R., Murtinu, S. Taxing the Multinational Enterprise: On the Forced Redesign of Global Value Chains and Other Inefficiencies. Journal of International Business Studies, forthcoming, doi: 10.1057/s41267-018-0159-3.; Fox School of Business Research Paper No. 18-019. Available at SSRN: https://ssrn.com/abstract=3168391

Nicolai J. Foss

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Ram Mudambi

Temple University - Department of Strategic Management ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-2099 (Phone)
215-204-8029 (Fax)

HOME PAGE: http://sbm.temple.edu/~rmudambi/index.html

Samuele Murtinu (Contact Author)

University of Groningen ( email )

Postbus 72
9700 AB Groningen
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
110
rank
231,618
Abstract Views
1,229
PlumX