Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/89655 
Authors: 
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper No. 4560
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper analyzes the effect on firm behavior and national tax revenues of a policy of allowing multinational firms to choose whether to be taxed under separate accounting rules (transfer prices) or an apportionment formula. Either method can be preferred by low-cost firms and by high-cost firms, and the preferred method can vary non-monotonically with firm cost characteristics. Separate accounting always generates more profitable output and conditional labor demand distortions while either method can generate a more profitable income-shifting distortion. With asymmetric countries, country preferences are only partially aligned with firm preferences due to the fact that countries and firms value tax base distortions differently. With partial alignment of firm and country preferences, choice can increase tax revenues in both countries.
Subjects: 
formula apportionment
separate accounting
transfer prices
JEL: 
H73
H25
K34
Document Type: 
Working Paper
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