Income Shifting as an Aspect of Tax Avoidance: Evidence from U.S. Multinational Corporations

2015 ◽  
Author(s):  
Adriana S. Cordis ◽  
Chris Kirby
Keyword(s):  
Multinational Corporations ◽  
Tax Avoidance ◽  
Income Shifting

Income Shifting as an Aspect of Tax Avoidance: Evidence from U.S. Multinational Corporations

2018 ◽  
Vol 21 (01) ◽  
pp. 1850001 ◽  
Author(s):  
Adriana Cordis ◽  
Chris Kirby
Keyword(s):  
United States ◽  
Multinational Corporations ◽  
Tax Avoidance ◽  
The United States ◽  
Income Shifting ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Positive Correlation ◽  
Robust Evidence

We use jurisdiction-specific effective tax rates (ETRs) to investigate income shifting as an aspect of tax avoidance by U.S. firms. Our central prediction is that tax-based incentives for shifting income, as measured by the spread between domestic and foreign ETRs, should be reflected in the share of pre-tax income earned by U.S. firms in foreign jurisdictions. The data lend substantial support to this prediction. We find robust evidence of a positive correlation between the foreign share of pre-tax income and the ETR spread that is consistent with firms shifting income both into and out of the United States. The evidence also indicates that firms respond asymmetrically to positive and negative ETR spreads. Specifically, the response to a negative spread is stronger than to a positive spread of the same magnitude.

Transfer Pricing: A Tax Avoidance Tool of Multinational Corporations

2014 ◽  
Author(s):  
Muideen Adeseye Awodiran
Keyword(s):  
Multinational Corporations ◽  
Transfer Pricing ◽  
Tax Avoidance

scholarly journals Assessing impact of base erosion and profit shifting on performance of subsidiaries of multinational corporations in Baltic countries

Equilibrium ◽  
2019 ◽  
Vol 14 (2) ◽  
pp. 277-293
Author(s):  
Egidijus Kundelis ◽  
Renata Legenzova
Keyword(s):  
Multinational Corporations ◽  
Empirical Research ◽  
Tax Avoidance ◽  
Empirical Literature ◽  
Company Performance ◽  
Tax Rates ◽  
Profit Shifting ◽  
Baltic Countries ◽  
The Baltic ◽  
The Impact

Research background: The problem of base erosion and profit shifting by multi-national corporations has been debated from different perspectives because of its multiple impact on the key actors in the economy. Studies refer to its positive impact on companies via corporate taxes saved, but its negative impact on governments via reduced tax collection. A number of empirical studies conducted in different countries support the substantial BEPS impact on company performance, but report differences in its magnitude. Other authors claim that, despite a wide range of tax avoidance opportunities available, tax avoidance is limited due to institutional measures imposed (tax audits, penalties for non-compliance) and high implementation costs. A majority of the previous empirical research covered large countries (USA, Germany) or regions (e.g. Europe), but there is a gap in the re-search assessing the BEPS impact on multinational corporations’ subsidiaries’ performance in countries with lower corporate income tax rates such as the Baltic countries. Purpose of the article: To assess the impact of base erosion and profit shifting on multinational corporations’ subsidiaries’ performance in the Baltic countries. Methods: Empirical research is conducted based on the framework employed by Hines and Rice (1994) to measure BEPS impact on company performance. Regression analysis with fixed effects was applied to a sample of 3,422 Latvian, Lithuanian and Estonian subsidiaries of multinational corporations, which are characterized by low corporate tax rates.  The data for the period of 2007–2015 was retrieved from the Amadeus database. Findings & Value added: The research revealed that Baltic countries’ tax differentials between multinational corporations’ parent and subsidiary countries might have a significant impact on the subsidiary’s financial performance. When the tax rate differences between Baltic and the foreign countries decrease by 1%, reported profits in Baltic countries increase by 2.3%, indicating profit-shifting behaviour. This is in line with the empirical literature and practices applied by multinational corporations. It is also in favour of anti-tax avoidance measures introduced by the EC to be adopted by Baltic and other EU countries.

scholarly journals Corporate Income Shifting in an Era of Tax Multilateralism: The Impact of Exchange-of-Information Agreements

2021 ◽  
Vol 69 (2) ◽  
pp. 357-389
Author(s):  
Devan Mescall ◽  
Paul Nielsen
Keyword(s):  
Multinational Corporations ◽  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Empirical Studies ◽  
Annual Reports ◽  
Income Shifting ◽  
Exchange Of Information ◽  
Pricing Rules ◽  
Using Data ◽  
The Impact

Using data from the annual reports of over 100,000 subsidiaries of multinational enterprises (MNEs) from 55 countries between 2003 and 2012, the authors of this article investigate the impact of exchange-of-information agreements ("EOI agreements") on tax-motivated income shifting. Transparency created by the signing of EOI agreements is expected to reduce the tax-motivated shifting of income by multinational corporations. Whether such agreements affect the income-shifting behaviour of multinational corporations is an unanswered question. The authors find evidence that, on average, EOI agreements do have an impact on tax-motivated income shifting. Additionally, they find that more advanced, modern EOI agreements are associated with a larger decrease in tax-motivated income shifting compared to the impact of early EOI agreements. This evidence challenges the prevalent assumption in empirical studies that EOI agreements are homogeneous. Supplemental analyses suggest that factors that affect the information asymmetry between MNEs and tax authorities, such as corporations with high levels of intangibles and tax authorities with strong transfer-pricing rules and enforcement, can diminish or enhance the effectiveness of EOI agreements in moderating tax-motivated income shifting. The evidence provided by this study shows that consideration of the tax authorities' information environment and the substance of an EOI agreement is essential when assessing the impact of such an agreement on the tax behaviour of sophisticated taxpayers such as multinational corporations.

International income shifting by US multinational corporations

1997 ◽  
Vol 29 (7) ◽  
pp. 925-934 ◽  
Author(s):  
Donald J. Rousslang
Keyword(s):  
Multinational Corporations ◽  
Income Shifting

scholarly journals Quantifying International Tax Avoidance: A Review of the Academic Literature

2018 ◽  
Vol 69 (2) ◽  
pp. 169-181 ◽  
Author(s):  
Nadine Riedel
Keyword(s):  
Intellectual Property ◽  
Tax Avoidance ◽  
Data Sources ◽  
Avoidance Behaviour ◽  
Income Shifting ◽  
Profit Shifting ◽  
Academic Literature ◽  
Quantitative Estimates ◽  
Debt Shifting ◽  
Quantitative Importance

Abstract This paper provides a brief review of the academic literature that assesses the quantitative importance of tax avoidance behaviour of multinational entities (MNEs) by means of income shifting from high-tax to low-tax affiliates. Existing studies unanimously report evidence in line with tax-motivated profit shifting (despite using different data sources and estimation strategies). In terms of shifting channels, there is evidence consistent with strategic mispricing of intra-firm trade, the location of valuable intellectual property at low-tax affiliates and debt-shifting activities. The quantitative estimates vary across approaches and studies though. The paper moreover stresses that some care should be warranted when interpreting profit shifting estimates as they often rely on non-trivial assumptions.

Geographic Income Shifting by Multinational Corporations in Response to Tax Rate Changes

1993 ◽  
Vol 31 ◽  
pp. 141 ◽  
Author(s):  
Kenneth Klassen ◽  
Mark Lang ◽  
Mark Wolfson
Keyword(s):  
Multinational Corporations ◽  
Income Shifting ◽  
Tax Rate

scholarly journals How Do Firms Use Cash Tax Savings? A Cross-country Analysis

2021 ◽  
Author(s):  
Danielle Higgins Green ◽  
Jon N. Kerr
Keyword(s):  
Multinational Corporations ◽  
Tax Avoidance ◽  
Cash Flows ◽  
Tax System ◽  
Country Level ◽  
Country Analysis ◽  
Cross Country ◽  
Use Tax ◽  
Tax Savings ◽  
Fund Investment

We examine how firms utilize cash generated via tax avoidance. Understanding how firms use these cash flows is important given the considerable global attention firms' tax avoidance activities have received. Using an international sample, we find that firms are more likely to invest cash tax savings or use them to repurchase shares rather than distribute them in the form of dividends. We find that our results hold for an international sample of domestic-only firms, distinguishing our study from U.S.-only studies, which focus on constraints and distortions of multinational corporations in a worldwide tax system. When partitioning on country-level governance, we find that firms in weak governance countries are more likely to use tax savings to fund investment and pay dividends. Taken together, our results suggest cash tax avoidance is associated with important firm decisions, and these associations vary across countries.

scholarly journals Thin Capitalization Rules in EU Member States

2014 ◽  
Vol 9 (2) ◽  
Author(s):  
Tatjana Ðukić
Keyword(s):  
Multinational Corporations ◽  
Multinational Firms ◽  
Fixed Ratio ◽  
Tax Avoidance ◽  
Tax Revenue ◽  
Profit Distribution ◽  
Eu Member States ◽  
Avoidance Measures ◽  
Ratio Approach ◽  
Thin Capitalization

Thin capitalization rules fit in the group of the specific anti-avoidance rules (SAAR) which are legalised by domestic tax laws. Anti-avoidance measures attempt to strike down unacceptable tax avoidance practices that have taken place with the increasing importance of multinational firms. In contrast to local firms, multinational corporations can shift profits to lower taxed foreign locations, leading to substantial losses in tax revenue. The article presents a systematic review of thin capitalization rules in EU 27, summing up four most common approaches of thin capitalization regulation. The analysis revealed that the majority of countries (15) legalised the fixed ratio approach, one quater (7) the subjective approach and only a few (3) legalised the hidden profit distribution. Two of them have improved thin-cap rules to so called earningstripping rule.

Sign in / Sign up

Export Citation Format

Share Document