International presentation
Aug 22, 2019

Innovation for tax avoidance: Product differentiation and the arm's length principle

IIPF 75th Annual Congress
  • Hirofumi Okoshi

Event date
Aug 21, 2019 - Aug 23, 2019
Presentation type
Oral presentation (general)
International Institute of Public Finance, University of Glasgow
University of Glasgow
United Kingdom

High product differentiation enhances consumers’ utility and firms’ profits but at the same time makes it difficult for tax authorities to audit MNEs’ tax avoidance strategies, as the arm’s length principle is difficult to apply. This paper combines these two aspects of product differentiation and studies the interrelation between profit shifting and product differentiation. The model shows that MNEs engage in more investment in product differentiation in the presence of profit shifting opportunities and globalization accelerates the investment. the model also show that globalization can improve welfare in a non-tax haven.