Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/232404 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8807
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
In this article we introduce a stochastic model with a multinational company (MNC) that exploits tax avoidance practices. We focus on both transfer pricing (TP) and debt shifting (DS) activities and show how their optimal level is chosen by the shareholders. In addition, we perform an extensive numerical simulation, fine-tuned on empirical data, to measure the impact of tax avoidance practices on the MNC’s value and to study their sensitivity to exogenous variables. We will show that: an increase in risk sharply reduces leverage and slightly decreases a MNC’s value; the cost of TP leads to a sharp reduction in the MNC’s value, whereas it does not affect leverage; the impact on MNC’s decisions is increasing in the tax rate differential; finally, the cost of DS has always a relevant impact on both MNC’s value and leverage.
Subjects: 
capital structure
default risk
business taxation and welfare
JEL: 
H25
G33
G38
Document Type: 
Working Paper
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