Bauer, Christian Josef; Langenmayr, Dominika - CESifo - 2012
This article analyzes profit taxation according to the arm’s length principle in a model where heterogeneous firms sort … into foreign outsourcing. We show that multinational firms are able to shift profits abroad even if they fully comply with … the tax code. This is because, in equilibrium, intra-firm transactions occur in firms that are better than the market at …