Local Ownership Requirements and Total Tax Collections

This paper analyzes the effects of local ownership requirements on inter-country profit-shifting behavior of the multinational corporation with the help of a vertically-integrated MNC-model in which real variables are decided at the division level. With local ownership requirements, an increase in the reported cost of the intermediate product decreases the MNC's global tax-tariff-foreign-shareholder payment. Still, tax-tariff payments to either home or both (when the tariff-effect dominates the foreign country's profit tax rate-effect) countries increase when the home profit taxd rate is not smaller than the foreign profit tax rate. When it is smaller, these payments increase if, in addition, the product of the foreign profit tax rate and the MNC's share in the foreign subsidiary is smaller than the home profit tax rate.