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1. Bold International Tax Reforms to Counteract the OECD Global Tax

Author:
Adam N. Michel
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Nearly 140 countries, including the United States, have endorsed a new global tax system proposed by the Organisation for Economic Co-operation and Development (OECD). This proposal, which aims to increase global business taxes and targets America’s most successful companies, threatens to undermine crucial features of the international corporate tax system. Congress will face a decision in 2025: conform to the OECD’s system or opt out and safeguard America’s position as the most attractive place to do business. The taxation of multinational businesses often raises concerns about a “race to the bottom” through harmful tax competition and businesses shifting profits to low-tax countries. Yet the magnitude and effect of these two phenomena are commonly misunderstood. Tax competition has allowed average statutory corporate tax rates to be cut in half over the past four decades, fueling investment and economic growth. Among OECD countries, revenues have increased while tax rates declined. The magnitude of profits shifted to low-tax countries is often inflated by researchers relying on data that overstate income in tax havens. A more comprehensive picture shows that about 8 percent of US corporate profits are reported in tax havens, only half of US multinationals have any presence in a tax haven, and they face higher effective tax rates than domestic competitors. Where it does exist, profit shifting acts as a tax cut on investment, boosting jobs and economic growth in both tax havens and higher-tax home markets. Following the long history of costly reforms to stop businesses from moving profits overseas, US policymakers should try a different approach. Instead of enacting new rules to stop income shifting out of the United States, Congress should focus exclusively on increasing the attractiveness of the United States as an investment destination.
Topic:
Reform, Business, Multinational Corporations, Tax Systems, OECD, and Competition
Political Geography:
Global Focus

2. Can Multinationals Withstand Growing Trade Barriers?

Author:
Mahdi Ghodsi, Michael Landesmann, and Nina Vujanović
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
Multinational enterprises (MNEs) are increasingly dealing with challenges shaped by the new geopolitical and trade environments. Besides traditional tariffs, exporting firms need to comply with regulatory non-tariff measures (NTMs) in the form of technical barriers to trade (TBTs) and sanitary and phytosanitary (SPS) measures. Although trade costs associated with these policy measures affect all firms, implications could be multifaceted for multinationals that base their international activities on exporting and importing and are important for the formation of global supply chains. Applying Poisson pseudo maximum likelihood to the unique Orbis dataset of firms on multinational subsidiaries, we show that NTMs pose a greater challenge to MNEs’ subsidiaries’ activity and performance than tariffs do. High-tech manufacturing subsidiaries of foreign MNEs are particularly vulnerable to these NTMs, as they suffer higher regulatory losses. However, multinational affiliates that have higher productivity, those with full foreign ownership representation, those that are embedded within a larger international network of subsidiaries, and those that are located in trading partners with deep preferential trade agreements can turn these trade challenges to their advantage. Our results have important implications for policy makers regulating trade in goods.
Topic:
International Trade and Finance, Foreign Direct Investment, Multinational Corporations, Tariffs, and Supply Chains
Political Geography:
Global Focus

3. Foreign Direct Investment, Brand Value, and Economic Performance: A Multinational Analysis

Author:
Tuba Yıldız, Ünal Arslan, Zeynep Ökten, Yıldız Sağlam Çelıköz, and Hale Kırmızıoğlu
Publication Date:
06-2024
Content Type:
Journal Article
Journal:
Istanbul Journal of Economics
Institution:
Istanbul University Faculty of Economics
Abstract:
The visibility and dependability of multinational corporations’ products increase with the fact that they introduce their goods to markets in other nations through foreign direct investments. The method for presenting products to international markets through foreign direct investments reveals the product’s reputation and therefore the brand’s development value. This study examines the relationship between foreign direct investments and brand value in Australia, Canada, China, France, India, Japan, Spain, the USA, and the UK for the period 2007-2023. The majority of studies in the literature attempt to explain the impact of brand value on foreign direct investments. However, very few studies explain the impac foreign direct investments on brand value and 1st generation unit root tests were generally used. Unlike existing studies, In this study, the second-generation unit root test, Durbin-Hausman cointegration, and Common Correlated Effects Mean Group estimation methods were used. As a result, it is anticipated that this study will contribute to the literature in this regard. The findings show that increases in foreign direct investments boost brand value.
Topic:
Economics, Foreign Direct Investment, Multinational Corporations, Data, and Branding
Political Geography:
Japan, China, United Kingdom, Canada, India, France, Spain, Australia, Global Focus, and United States of America

4. Making Sense of Multinational Cooperation

Author:
Ina Kraft
Publication Date:
10-2024
Content Type:
Journal Article
Journal:
Journal of Military and Strategic Studies
Institution:
Centre for Military, Security and Strategic Studies
Abstract:
Multinational cooperation is a prominent characteristic among the armed forces of European states. However, despite its prevalence, a shared understanding of this phenomenon is lacking in the research community. Furthermore, studies often restrict their focus to examining the effects of cooperation, neglecting the essential exploration of its underlying conditions. To overcome these limitations, this article develops a categorisation of multinational cooperation into structures, processes, and activities. It concludes that multinational cooperation in Europe can be categorised into three distinct phases (1990-2004, 2005-2013, 2014-) with significantly varying underlying motives for cooperation, particularly since the ‘wave of multinational cooperation’ in Europe following Russia’s aggression against Ukraine in 2014. By introducing a novel framework for comprehending military cooperation and presenting an empirically informed overview of recent shifts in cooperation across Europe, this article aims to invigorate further research in the field.
Topic:
Armed Forces, Multinational Corporations, Regional Security, and Russia-Ukraine War
Political Geography:
Europe

5. The Multiannual Financial Framework: The search for flexibility and recognised effectiveness

Author:
Adriaan Schout and Saskia Hollander
Publication Date:
04-2023
Content Type:
Special Report
Institution:
Clingendael Netherlands Institute of International Relations
Abstract:
The European Union (EU) is currently confronted with developments that could have deep impacts on our societies and policies. Yet the EU’s Multiannual Financial Framework (MFF) – which defines the size and aim of the EU budget over a certain period of time – has difficulties in overcoming its inflexibility and ensuring best value in relation to shifting priorities. One important step that could modernise the MFF would be to improve the use of effectiveness assessments in relation to EU spending. In 2003, André Sapir and colleagues famously referred to the MFF as a ‘historic relic’ with expenditures, revenues and procedures being ‘inconsistent with the present and future state of EU integration’. Although the MFF has improved since then, it continues to suffer from discrepancies between stated priorities and actual spending. EU finances risk becoming increasingly reliant on funds and instruments outside the MFF ceiling because existing programmes are hard to change. Moreover, doubts about the effectiveness of the MFF remain. With European integration having moved far beyond the level of technical harmonisation of the internal market, the EU budget, arguably, needs more flexibility to respond to current geopolitical and societal challenges and investment needs. As political discussions on the next MFF – the current MFF runs from 2021 to 2027 – are starting, this report discusses avenues for realigning expenditures to changing EU priorities and to unforeseen challenges and crises. In order to enhance flexibility suitable procedures are required that would lead to political decisions based on accurate assessments. Furthermore, better methods are needed to communicate potential – and possibly painful – shifts in priorities to the broader public. In order to develop such procedures, thorough analysis and discussion are needed on the effectiveness of EU programmes and the use of effectiveness assessments in redefining political priorities. This report therefore relates the concept of European added value – defined by the Commission as ‘the value resulting from an EU intervention which is additional to the value that would have been otherwise created by Member State action alone’ – to mechanisms to better respond to new situations. One of the questions this raises is whether the current (multilevel) systems for assessing European added value are able to offer the timely information needed for flexibility. Given the workload involved in performance assessments, and given the importance of national ownership of reforms, further analysis is needed of the role of the European Court of Auditors (ECA) and its interactions with its national counterparts.
Topic:
European Union, Finance, and Multinational Corporations
Political Geography:
Europe

6. Strategies of Multinational Companies Entering China in the Era of U.S.-China Competition and Implications for Korea

Author:
Sang Baek Hyun, Ji Young Moon, Min-suk Park, Jonghyuk Oh, and Yunmi Oh
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
With the integration of resources and markets around the world sparked by the trend of globalization, multinational companies have continued to grow at a rapid pace. In particular, global manufacturers have maintained their competitiveness by distributing resources more efficiently while establishing a global value chain with China as their main production hub. However, measures taken by the U.S. to block China’s access to technology and supply chains in some high-tech industries have prompted discussions on reorganization of the global supply chain, placing these multinational companies in an uncertain situation concerning their operations in China. At a time when competition between the U.S. and China is intensifying, it is necessary to look at the response strategies of global companies that have entered China and seek effective countermeasures for Korean companies.
Topic:
Economics, Multinational Corporations, Manufacturing, and Competition
Political Geography:
China, Asia, South Korea, North America, and United States of America

7. Investment Facilitation and Promotion in Cambodia: Impact of Provincial-level Characteristics on Multinational Activities

Author:
Shandre Mugan Thangavelu, Leng Soklong, Vutha Hing, and Ratha Kong
Publication Date:
08-2023
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This paper examines the foreign direct investment policy of Cambodia in terms of investment promotion and facilitation. The study examines the key factors affecting the location of foreign firms (with more than 10% ownership) in Cambodia accounting for key provincial-level (18 provinces) characteristics, such as infrastructure (roads), population density (young population), special economic zones (SEZs), the number of establishments, poverty rate, rainfall, water supply, electricity supply, sharing of an international border, sharing a coastal area, and consumption per capita. The paper uses administrative data from the Council for Development of Cambodia, which manages foreign direct investment and the special economic zones in Cambodia. The study consists of nearly 500 foreign firms that have been approved to invest in Cambodia from 2017 to 2020. The results indicate a positive impact of road infrastructure (national and provincial roads) on foreign investment activities as it improves the movement of people and goods, reduces transaction costs, increases market access, and increases the service linkages within the domestic economy. At the provincial level, we observe that electricity supply, rainfall (water supply), land area, and a young working population have a positive impact on the investment decisions of foreign investors in the provinces of Cambodia. We also observe a negative impact of SEZs on foreign investment in Cambodia. The results indicate an urgent need for structural transformation of the Cambodian economy in terms of investment in soft and hard infrastructure and the development of the critical skills and human capital of the labour force. It is important to improve and upgrade the SEZs with key technologies and innovation to be more competitive in attracting foreign investment activities, which will be critical for increasing the competitiveness of Cambodian industries in global value chain activities.
Topic:
Multinational Corporations, Investment, Trade, and Global Value Chains
Political Geography:
Cambodia and Southeast Asia

8. Exxonmobil and Community Development: an Evaluation of its Corporate Social Responsibilities to Host Communities in Akwa Ibom State

Author:
Edet Joshua Tom, Itoro Bassey Ebong, and Maureen Oki
Publication Date:
12-2023
Content Type:
Journal Article
Journal:
Journal of Political Studies
Institution:
Department of Political Science, University of the Punjab
Abstract:
Multinational oil companies are expected to be socially responsible to their workers, communities and other stakeholders through their social activities, even at the expense of their immediate profit. In line with the above, ExxonMobil has claimed to have invested millions of dollars in community development projects within the host communities since her inception. The host communities on the hand claimed that the company has reneged on its corporate social responsibilities to them. The main objective of this work is to assess ExxonMobil efforts in discharging its corporate social responsibilities (CSR) in oil producing communities of Akwa Ibom State in Nigeria. To achieve the objective of the study, survey and descriptive research design were adopted. Data were drawn from both primary and secondary sources. Accordingly, stakeholder theory of CSR was used as theoretical framework. The major finding of the study revealed among others that ExxonMobil h ad not significantly engaged in health care and skill acquisition programme in its host communities in Akwa Ibom State due to poor implementation of corporate social laws as well as the complicity of the Community Liaison Officers (CLOs) and the Exxon Mobil officials in the implementation of corporate social projects and programmes within the host communities. Based on the findings, the study recommended among others that the government should put a legal framework on ground that will make Corporate Social Responsibility mandatory as against the practice currently in vogue where Corporate Social Responsibility is discretionary. This will make the oil and other multinational companies operating in Nigeria to take CSR as a serious business rather than what is obtainable.
Topic:
Development, Oil, Multinational Corporations, and Exxonmobil
Political Geography:
Africa and Nigeria

9. Tax Avoidance and the Complexity of Multinational Enterprises

Author:
Manon Francois and Vincent Vicard
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
Does the complexity of the ownership structure of multinational enterprises' (MNEs) serve tax avoidance? We use firm-level cross-country data to show that affiliates belonging to more complex MNEs are more likely to bunch around zero profit, which is consistent with complexity enabling tax avoidance by multinationals. Our results show that only the more complex MNEs shift profits away from their high-tax affiliates, while MNEs with flat ownership structures do not display such pattern.
Topic:
Multinational Corporations, Tax Systems, Complexity, and Firm Organization
Political Geography:
Global Focus

10. Profit-shifting Frictions and the Geography of Multinational Activity

Author:
Alessandro Ferrari, Sébastien Laffitte, Mathieu Parenti, and Farid Toubal
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
International tax rules are commonly viewed as obsolete as multinational corporations exploit loopholes to move their profits to tax havens. This paper uncovers how international tax reforms can curb profit shifting and impact real income and welfare across nations. We introduce profit shifting and corporate taxation in a quantitative model of multinational production. The model delivers "triangle identities" through which we recover bilateral profit-shifting flows. Our estimates of both tax-base and profit-shifting elasticities, together with profit-shifting frictions, govern how taxes shape the geography of production and profits. Our model accommodates a rich set of corporate taxation scenarios. A global minimum tax would be beneficial for welfare since it would increase the public good provision and encourage countries to raise their statutory corporate tax rates. Instead, a border-adjustment tax that eliminates profit shifting could result in welfare losses.
Topic:
Reform, Multinational Corporations, Tax Systems, and Profit Sharing
Political Geography:
Global Focus