Presentations

Dec 21, 2019

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

Japanese Society of International Economics Kanto
  • Hirofumi Okoshi

Language
English
Presentation type
Oral presentation (general)
Organizer
Japan Society of International Economics Kanto
Venue
Nihon University
Country/Region
Japan

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.