Centralized vs. de-centralized multinationals and taxes

Abstract

The paper examines how country tax differences affect a multinational enterprise’s choice to centralize or de-centralize its decision structure. Within a simple model that emphasizes the multiple conflicting roles of transfer prices in MNEs — here, as a strategic pre-commitment device and a tax manipulation instrument —, we show that (de-)centralized decisions are more profitable when tax differentials are (small) large.