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Session Overview
Session
A05: Interjurisdictional Taxation
Time:
Wednesday, 18/Aug/2021:
10:45am - 12:15pm


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Presentations
10:45am - 11:07am

Anthropogeography And Taxation

David Agrawal1, Mohammed Mardan2

1University of Kentucky, USA; 2Norwegian School of Economics (NHH), Norway

The common view is that bigger jurisdictions set higher tax rates than smaller jurisdictions. Most tax competition models assume that the cost of tax arbitrage is uniformly distributed and the tax base is only mobile between two jurisdictions. We overturn this conventional result by relaxing these (unrealistic) assumptions, but still assuming that the only source of heterogeneity is due to population differences. Applied to a model of commodity taxes, we show that the more people are living near borders, the lower will be a jurisdiction's tax rate. Empirically, we exploit changes over time and space of the population of a jurisdiction. Increases in the number of people living near borders lowers tax rates, and after accounting for this, changes in total population have little effect on tax rates. Our application extends to capital tax competition or profit taxation when moving costs are not uniformly distributed across firms.

Agrawal-Anthropogeography And Taxation-372.pdf


11:07am - 11:30am

Quality Upgrading for Tax Avoidance

Hirofumi Okoshi

Okayaya University, Japan

Governments sometimes incentive firms to upgrade their quality of goods but such a policy

makes it difficulty to collect tax revenue from multinational enterprises (MNEs) because the

application of the arm’s length principle is hard. Thus, with tax avoidance opportunities, results of the optimal policy for R&D is in question. This paper links the innovation for quality upgrading with profit shifting. As the opportunities of tax avoidance increases gains from an MNE’s investment in quality, it contributes to quality upgrading, which spillovers to a local firm. Moreover, the optimal policy for firms’ investment is to give subsidy without profit shifting, which is in line with Toshimitsu (2003). However, the optimal policy is to impose tax on R&D activities if profit shifting is easy and does not cost the MNE a lot.

Okoshi-Quality Upgrading for Tax Avoidance-296.pdf


11:30am - 11:52am

The Anatomy of a Global Network of Multinationals: The Case of Japan

Kozo Kiyota

Keio University, Japan

Multinational enterprises (MNEs) control their foreign subsidiaries not only directly from their headquarters but also indirectly through other foreign subsidiaries. To investigate potential investment and profit flows between countries, it is essential to capture the global network of MNEs. However, little is known about the network structure {\it within a firm between countries}. In this paper, we first theoretically characterize PageRank centrality in an economic analysis. Then using unique comprehensive data on Japanese companies ranked in the top 100 nonfinancial MNEs in the world, we empirically show that simple measures of network analysis help us to identify the degree of indirect foreign direct investment (FDI), potential special purpose entities, and the potential channels of investment and profit flows between countries.

Kiyota-The Anatomy of a Global Network of Multinationals-155.pdf


11:52am - 12:15pm

Minimum Tax Standards for International Corporate Taxation and Tax Enforcement

Jean Hindriks1, Yukihiro Nishimura2,3

1CORE (LIDAM) and Economics School of Louvain, Universite catholique de Louvain; 2Osaka University, Japan; 3CESifo, Germany

Minimum taxation means that if a multinational enterprise (MNE) declares its operations in a jurisdiction taxing less than the minimum tax, the countries where the real economic activity takes place would have the right to tax the difference. There is a revival of the minimum tax standard for two reasons. First, there is concern about the complexity of assigning taxing rights and the effectiveness of profit-splitting rules in eliminating profit shifting. Second, the minimum tax standard has the merit of tackling multinational tax avoidance at its root. However, this argument ignores the interaction between minimum taxation and tax enforcement incentive. Building upon Hindriks and Nishimura (2021), we develop a framework in which effective tax compliance requires enforcement cooperation between countries (e.g. exchange of information). We show that under certain circumstances, minimum taxation may induce the low tax countries to abandon enforcement cooperation unilaterally.

Hindriks-Minimum Tax Standards for International Corporate Taxation and Tax Enforcement-161.pdf


 
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