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Tax competition when transfer price is regulated |
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| รหัสดีโอไอ | |
| Creator | Sirikamon Udompol |
| Title | Tax competition when transfer price is regulated |
| Contributor | Gareth D. Myles |
| Publisher | Thammasat University |
| Publication Year | 2562 |
| Journal Title | Thammasat Review of Economic and Social Policy |
| Journal Vol. | 5 |
| Journal No. | 1 |
| Page no. | 6-67 |
| Keyword | Corporate tax policy, Transfer pricing, International trade, Multinational enterprises |
| URL Website | http://www.tresp.econ.tu.ac.th/ |
| Website title | Thammasat Review of Economic and Social Policy |
| ISSN | 2465-4167 |
| Abstract | This paper aims to find the government's optimal corporate tax that maximises revenue (or welfare), as well as minimises distortions of the firm's choices of investment and profit location. We construct a theoretical model of tax competition and tax coฌordination between two governments when a multinational firm minimises taxes through transfer pricing and the governments have two policy instruments: the tax rate and the transfer pricing penalty rate. We find that (1) tax competition results in too-low a tax rate and under-provision of public goods; (2) when the countries' exogenous penalty rates are different, under govฌernment cooperation, the optimal tax rate in each country also different; (3) an attempt by the OECD to have a single transfer pricing penalty rule may not be the only optimal solution for small cooperative governments; and (4) countries over-regulate the multinational firm's transfer prices when they compete on transfer pricฌing penalty rates. The paper suggests that a country with lenient transfer pricing rules (tax rates) should maintain low tax rates (transfer pricing rule) and a country with a tougher transfer pricing rule (tax rates) should maintain high tax rates (transfer pricing rule). |
