Taxing network products - the impact on decisions of MNEs

36 Pages Posted: 28 Sep 2021 Last revised: 25 Oct 2023

See all articles by Regina Ortmann

Regina Ortmann

Paderborn University; TRR 266 Accounting for Transparency

Dirk Simons

University of Mannheim - Accounting and Taxation

Dennis Voeller

TBS Business School

Date Written: October 23, 2023

Abstract

Despite an ongoing increase in global revenues for network products, current discussions on tax reforms mostly neglect the specific demand pattern of these products. This paper compares tax-induced distortions of transfer prices and sales quantities for network products and traditional products. In contrast to traditional products, the customer value of network products increases in the number of co-users implying that international sales matter for domestic ones. We analyze unanticipated consequences of taxation when the specificities of network products are ignored. While sales of traditional products are not affected by corporate taxation, optimal sales quantities of network products vary with tax-rate differentials. Specifically, the network effect is intensified in the high-tax country and dampened in the low-tax country by corporate taxation. This implies that policymakers must consider the level of foreign tax rates to anticipate domestic revenue effects
for network products.

Keywords: global tax reform, network products, profit shifting, sales effects, tax-induced distortions, transfer pricing

JEL Classification: C70, H26, H32, M48

Suggested Citation

Ortmann, Regina and Simons, Dirk and Voeller, Dennis, Taxing network products - the impact on decisions of MNEs (October 23, 2023). TRR 266 Accounting for Transparency Working Paper Series No. 64, Available at SSRN: https://ssrn.com/abstract=3931211 or http://dx.doi.org/10.2139/ssrn.3931211

Regina Ortmann (Contact Author)

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Dirk Simons

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Dennis Voeller

TBS Business School ( email )

1 Place Alphonse Jourdain
Toulouse, 31068
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
127
Abstract Views
715
Rank
419,679
PlumX Metrics