International Institutions and Multinational Enterprises

International Institutions and Multinational Enterprises

Global Players – Global Markets

International Institutions and Global Governance series

Edited by John-ren Chen

This book provides rigorous analysis of the wide range of questions surrounding the role of international institutions in governing global business, especially multinational enterprises (MNEs). The analysis, both theoretical and empirical, focuses on the corporate governance of MNEs and to what extent their management takes into account the negative effects of their activities. Also discussed are: how nation states and international institutions control the activities of MNEs, and how the role and strategies of international institutions can be changed to minimise any negative effects without hampering the positive aspects and effects of MNEs.

Chapter 5: Do Multinational Enterprises Pay Less Taxes

Francesca Gastaldi and Maria Grazia Pazienza

Subjects: economics and finance, international economics

Extract

5. Do multinational enterprises pay less tax? Empirical evidence for Italy Francesca Gastaldi and Maria Grazia Pazienza INTRODUCTION In recent years, multinational enterprises (henceforth ME) have increased their role in more integrated economic systems. As a consequence, international taxation issues have attracted the attention of both economists and policy makers. This focus initially originated in the United States, Canada and the United Kingdom, where both the external attitude of firms and the amount of direct investment flows have been substantial. Recently, following the process of creation of the European Union (EU), these issues have become more important also in Europe and in Italy. In the EU, direct investment (DI) outflows tripled, from 1.5 per cent of GDP in 1993 to 4.6 per cent of GDP in 1998. Inflows more than doubled, from 1.2 per cent of GDP to 2.8 per cent of GDP. In the same period, in the United States, outflows increased from 1 to 1.5 per cent of GDP, while inflows increased from 0.6 to 2.1 per cent of GDP. This sharp change has raised the question whether the corporate taxation originally introduced in a more regulated financial environment with limited international capital mobility may still be appropriate. Various factors may affect the answer: (a) how taxes affect savings and capital formation in different countries; (b) how they affect the choice between debt and equity; (c) how more integrated systems have increased the opportunity for tax avoidance and/or tax evasion; and (d) the role...

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