A Comparison of the Tax‐Motivated Income Shifting of Multinationals in Territorial and Worldwide Countries

Abstract

This paper tests for differences in the tax-motivated income-shifting behaviors of multinationals subject to different systems of taxing foreign earnings. I find that, on average, multinationals subject to territorial tax regimes shift more income than those subject to worldwide tax regimes. The difference in shifting, however, is driven by a difference in the subset of shifting that involves the parent country; multinationals in the two groups appear to shift equally among their foreign affiliates. In additional tests, I find that the shifting of worldwide firms is sensitive to reinvestment in the recipient countries, while that of territorial firms is not.Une comparaison des transferts de b en efices des multinationales motiv es par les r egimes fiscaux territoriaux et internationaux R ESUM EL'auteur v erifie les diff erences dans les comportements de transfert de b en efices motiv es par l'impôt des multinationales assujetties a diff erents r egimes d'imposition des b en efices etrangers. Il constate qu'en moyenne, les multinationales assujetties a des r egimes fiscaux territoriaux transf erent davantage de b en efices que celles qui sont assujetties a des r egimes fiscaux internationaux. Ces distinctions dans les comportements de transfert sont toutefois r egies par une diff erence dans le sous-ensemble des transferts qui font intervenir le pays de la soci et e m ere; les multinationales des deux groupes semblent effectuer des transferts egaux entre leurs soci et es affili ees etrang eres. Des tests suppl ementaires permettent a l'auteur de constater que les transferts effectu es par les soci et es soumises a un r egime fiscal international sont sensibles au r einvestissement dans les pays b en eficiaires, ce qui n'est pas le cas des transferts effectu es par les soci et es soumises a un r egime fiscal territorial.

Working Capital Management, the Credit Crisis, and Hedging Strategies: Canadian Evidence

“…Thus, we provide a new perspective on the multinational “trapped cash” controversy. As Canadian multinational firms do not face the same tax regime as U.S. firms and as our sample firms are not R&D intensive, our evidence extends that reported in Markle () and Pinkowitz et al. () and suggests that foreign exchange risk management is an important influence on multinational firms’ cash management decisions.…”

“…The tax incentive explanation is less likely in our sample both because Canadian multinational firms do not face the same tax regime as U.S. firms and because our sample firms are not R&D intensive, where the non‐repatriated foreign earnings issue is most evident in U.S. studies. Hence, our evidence complements that in Markle () and Pinkowitz et al. () and supports the notion that foreign exchange risk management is an important influence on multinational firms’ cash management decisions.…”

Corruption and sustainable development: The impact on income shifting in European international groups

“…This model is often used in the income shifting literature. Following Markle (), we include in the model an indicator variable and its interactions with the tax variable to test our hypothesis. …”

Do Political Connections Weaken Tax Enforcement Effectiveness?

“…China requires consolidated financial reporting but separate legal entity tax filing. Such an arrangement, similar to the separate reporting under the territorial system (Markle ; Altshuler and Grubert ), creates strong shifting incentives. We model the opportunity for such shifting as a joint function of the spread in tax rates among members of the consolidated group and the magnitude of intragroup transactions, like Jacob ().…”