More on the profit shifting costs function. Analysis of the literature and other modelling approaches

Abstract

AbstractIn this paper, we study another approach to the profit shifting costs function of multinational profit shifting. First, we describe the modelling approaches of such costs functions and provide a synthesized analysis. More precisely, we investigate the involved resource costs that multinational firms incur through a tax-motivated reallocation of profit across tax jurisdictions. Second, we set up a simple theoretical model of a representative multinational firm within which we conceptualize our new cost function. We expand the literature by including a relationship between profit shifting costs and tax uncertainty. Furthermore, we describe the costs split, the property of our costs function and we express its parameters. Finally, we discuss our results in conjunction with the literature, emphasizing that profit shifting costs and tax uncertainty cause more concerns for developing countries than advanced economies.

Keywords

• Profit shifting costs
• modelling approach
• transfer price
• profit shifting
• tax uncertainty
• developing countries