Abstract
The international heterogeneity of tax regimes among countries, where multinational firms operate, and the generally accepted principle that interest on debt is treated as a deductible cost for tax purposes, reduces corporate benefits, and consequently, the amount of taxes paid has consequences on the allocation of resources: the firm obtained a lower cost of capital (and potentially could invest more), the shareholders return increases (as well as executives paid), the income of Tax Authorities diminished, and a greater inequality results (given the high concentration of wealth and MNE capital ownership). A global economy needs a simpler and more transparent and equivalent corporate tax system among countries that only can be reached through international cooperation. Globalization as well as the process (evolution) of the digital economy have contributed to tax competition (About 60% of profits of MNE are the results of tax competition (IMF, World Economic Outlook, 2022)) that reduces income taxes of countries.
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Notes
- 1.
The richest people elude 25% of their income using tax heavens.
- 2.
The proportion of corporate tax forgone amounts to 15, 22, and 26% in Italy, France and Germany respectively; Spain lost 14% of its corporate tax revenue.
- 3.
The real evidence says that the international agreement towards harmonisation of fiscal regimens is far from getting an effective path.
- 4.
In this case, we suppose that the firm obtain the nominal of the loans (binds). Obviously, the market value of debt may not be identical to the face value.
- 5.
Price to Book Value = Per * Expected Long term ROE.
- 6.
The fiscal elusion in the EU is estimated to be around a billion euros per year the EUS and about 200,000 million globally.
- 7.
The effective tax rate on MNE’s profits has been declining along time; nowadays the effective tax rates are between 4% and 8.5%.
- 8.
The tax competition to promote investment has led to declining corporate income tax (CIT) rates in all geographical regions and in most economies since the 1980s. The worldwide CIT rate more than halved, from 40 per cent in 1980 to 23 per cent in 2021 (UNCTAD, 2022).
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Annex: Debt Finance of Main Multinational Firms by Country of Origin 2018–2020
Annex: Debt Finance of Main Multinational Firms by Country of Origin 2018–2020
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Durán-Herrera, J.J., Lamothe-Fernández, P. (2023). Debt and Taxes as Value-Added Factors for Multinational Enterprises: International Policy Implications. In: Tsounis, N., Vlachvei, A. (eds) Advances in Empirical Economic Research. ICOAE 2022. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-031-22749-3_5
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