On the Implications of Introducing Cross-Border Loss-Offset in the European Union

No 5436, CESifo Working Paper Series from CESifo

Abstract: This article investigates a tax competition model where countries compete for capital and profits of multinational enterprises (MNEs) through statutory tax rates and cross-border loss-offset provisions, which allow a transfer of foreign subsidiaries’ losses to the parent company. A joint implementation of full cross-border loss-relief is welfare maximizing, because it ensures production efficiency and no profit shifting in equilibrium. Local governments choose zero level of the loss-relief in a noncooperative equilibrium, if only capital is mobile and relax the loss-offset, when MNEs engage in profit shifting. Therefore, allowing multinationals to undertake international tax planning activities may be welfare-improving in our model.

Keywords: cross-border loss-offset; tax competition; profit shifting (search for similar items in EconPapers)
JEL-codes: F23 H32 (search for similar items in EconPapers)
Date: 2015
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Journal Article: On the implications of introducing cross-border loss-offset in the European Union (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5436

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