Business Tax Policy under Default Risk

Comincioli, Nicola; Panteghini, Paolo M.; Vergalli, Sergio

doi:10.2139/ssrn.3417592

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The Value Of Debt1

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2020

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“…As pointed out by assumption 3, the MNC goes on producing: in this case, the lender will benefit from the future net profit flow. 9 As proven by Comincioli et al (2019), a second default cannot occur anymore. Thus, the value of debt after default is equal to a portion Ω ∈ (0, 1) of the discounted perpetual rent of future net profit:…”

Section: The Value Of Debtmentioning

confidence: 98%

Debt and Transfer Pricing: Implications on Business Tax Policy

2020

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In this article we introduce model to describe the behavior of a multinational company (MNC) that operates transfer pricing and debt shifting, with the purpose of incrementing its value, intended as the sum of equity and debt. We compute, in a stochastic environment and under default risk, the optimal shares of profit and debt to be shifted and show how they are a effected by exogenous features of the market. In addition, by means of a numerical analysis, we simulate and quantify the benefit arising from the exploitation of tax avoidance practices and study the corresponding impact on MNC's fundamental indicators. A wide sensitivity analysis on model's parameters is also provided.

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Section: The Value Of Debtmentioning

confidence: 98%