The tax impact on multinational corporate financial decisions

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Fonseca , Peter Vaz da
Jucá, Michele Nascimento
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Hadad Junior, Eli
Kayo, Eduardo Kazuo
Forte, Denis
Barboza, Flávio Luiz de Moraes
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According to the trade-off theory, companies resort to third-party capitals - to the nevel at which the costs associated with bankruptcy risks - overcomes the benefit from tax interest deduction. From the 1990s onwards, the world market presents greater business flow and competition among countries starts to stimulate reduction of the corporate income tax rate. In addition, the world economical crisis - 2007/2008 - enlarges the tax competition process, tax deficits acceleration in developed countries. As a result, government and companies rise taxes to a first order theme. There is an incentive, even greater, for companies to organize their strategies in world platform. The result of this all is that production may take place in different continents, as well as the (in) tangible assets may be registered in units located in countries, other than the parents’ own country. There is the possibility of opening subsidiaries in tax havens, as a part of their tax planning implementation. Given the above, this research proposes to analyze the tax influence on MNCs’ investment and financing decisions. To this end, three essays are developed. The first one identifies objective aspects related to the papers analyzing this topic - journals, authors, keywords, etc. In addition, some knowledge gaps are pointed out - and a proposition of a future research agenda for researchers. The second one verifies the impact on MNCs’ foreign direct investments decisions - in crisis and financial stability scenarios. Multinacional company’s investment decision is highlighted for financing the domestic company. In these studies, tax proxies in literature are considered dua to their complexity - marginal benefit area, marginal tax rate, and last dollar marginal tax rate. Through structural equations econometric models, a positive relationship is identified between bankruptcy cost and multinational companies’ value and their financial leverage level on, the other hand, interest rates and tax benefits present a negative relationship with these companies’ indebtedness. Besides that, multinational companies are more indebted than more domestic ones - among other reasons - thanks to their negotiation power in obtaining lower interest rates. Finally, the third essay analyses the impact of MNCs’ specific characteristics on their decisions of establishment subsidiaries in tax havens. Among the contributions of the study, there is the use of the non-conventional tax proxy - AREA - Which captures the short and long term investments. Another differential is the transfer pricing intensity (IPI) variable whose data are manually collected. The results indicate that MNCs make use of different instruments, - even combined - aiming at the conglomerate’s total tax reduction. Therefore, despite the governments, and international entities efforts, the essay suggests that the application of a minimum rate - theme in these organizations' discussion focus - may not reach the desired effect in case there still remains jurisdictions with low-taxation options.
taxation , multinational , emerging markets , tax havens , financial crisis