Discussion Papers, Department of Finance and Management Science, Norwegian School of Economics (NHH)
No 2007/11:
Taxes and Decision Rights in Multinationals
Søren Bo Nielsen ()
, Pascalis Raimondos-Møller ()
and Guttorm Schjelderup ()
Abstract: We examine how a multinational’s choice to centralize or
de-centralize its decision structure is affected by country tax
differentials. Within a simple model that emphasizes the multiple
conflicting roles of transfer prices in MNEs — here, as a strategic
pre-commitment device and a tax manipulation instrument —, we show that
decentralization is preferred in case of small tax differentials, whereas
centralization can be more profitable, when tax differentials are large. In
essence, the organizational flexibility of MNEs is triggered by the scope
for tax minimization. Our analysis allows for both commitment and
non-commitment to transfer prices, and for alternative modes of
competition.
Keywords: Centralized vs. de-centralized decisions; taxes; transfer prices; MNEs; (follow links to similar papers)
JEL-Codes: F23; H25; L23; (follow links to similar papers)
20 pages, March 27, 2007
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