Multijurisdictional Firms and Governments' Strategies Under Alternative Tax Designs

33 Pages Posted: 28 Sep 2005

See all articles by Marcel Gerard

Marcel Gerard

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

Date Written: August 2005

Abstract

Conducted in a framework which embodies tax-shifting opportunities, risk of losses and possibility of interjurisdictional loss-offset, this paper investigates a reform of multijurisdictional enterprises taxation, a move from Separate Accounting to Formulary Apportionment. Findings are summarised in a series of propositions on the strategic behaviour of enterprises and authorities. Under Separate Accounting, tax-shifting opportunities reduce investment in the lower-taxing jurisdiction, tax sensitivity of investment and tax competition. Moving to Formulary Apportionment eliminates such opportunities, pushing the economy in the opposite direction. Permitting the firm to compensate losses among affiliates allows it to benefit from a tax-shifting and insurance device.

Keywords: multijurisdictional enterprise, separate accounting, formulary apportionment, cross-border loss offset

JEL Classification: H32, H73, H87

Suggested Citation

Gerard, Marcel, Multijurisdictional Firms and Governments' Strategies Under Alternative Tax Designs (August 2005). CESifo Working Paper Series No. 1527. Available at SSRN: https://ssrn.com/abstract=812324

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

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