Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245392 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9211
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We study the choice between source-based and destination-based corporate taxes in a two-country model, allowing multinational firms to use transfer pricing to allocate profits across tax jurisdictions. We show that source-based taxation is a Nash equilibrium for tax revenue maximizing jurisdictions if domestic and foreign firms generate large revenues. We also show that destination-based taxes are a Nash equilibrium when firms generate low revenues, which implies the presence of multiple equilibria. Both the source and the destination principle coexist in equilibrium when domestic and foreign corporate revenues are intermediate. However, the source principle always tax-dominates the destination principle.
Subjects: 
tax competition
multinational firms
corporate taxes
transfer pricing
JEL: 
F23
H00
H25
H26
H71
Document Type: 
Working Paper
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