International Taxation Policies and their Impact on Multinational Corporations

Abstract

This paper discusses the influence of international tax policy on MNCs' strategic and financial behavior. Through mixed research, which employs both statistical data on 50 MNCs from 15 countries for 5 years and the evidence from interviews with MNCs' tax managers, this study can
prove the mechanisms through which tax affects MNCs' behavior. Both descriptive statistic, correlation analysis, and regression analysis indicates a negative relation between the higher tax jurisdiction and the amount of capital investment as well as repatriation of the profits, and vice versa for the lower tax jurisdiction. Compliance costs, tax incentives, and the tax risk level act as mediating factors to transmit tax policy to corporate behaviors. And the mediating variables can be affected by the moderator variables, such as economic conditions, industry, and others. As for the results from regression and correlation analyses, it can be found that the corporation tax rate, bilateral tax agreements, and establishment of a worldwide minimum tax rule have a significant effect on MNCs' decision of the location of investments, establishment of subsidiaries, and redistribution of profits. The research conclusions can be of value to policymakers and managers. Policymakers need to consider both the goal of maximizing revenue and attracting investment; managers need to develop an appropriate tax planning strategy to achieve the maximized cash flow and minimum risk. By considering the relationship between the international tax policy framework, the MNC's decision-making, and the MNC's financial outcome, the study contributes to the literature. It offers implications for managers of multinational corporations operating in a complex tax environment.