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

Markle, Kevin

doi:10.2139/ssrn.1764031

Cited by 62 publications

(86 citation statements)

References 11 publications

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“…First, our results suggest that the tax system to which the parent company is subject and its interplay with foreign tax systems shapes taxrelevant decisions of multinationals and their subsidiaries. In line with the theory provided by Scholes et al (2015), we show that a worldwide tax system not only affects income shifting (Atwood, Drake, Myers, and Myers 2012;Markle 2016), but also provides incentives for those subsidiaries operating abroad to be less tax aggressive.…”

Section: Introductionsupporting

confidence: 91%

“…Markle (2016) shows that parent companies subject to worldwide tax systems shift income to a lesser extent than parent companies subject to territorial systems.…”

Section: Introductionmentioning

confidence: 99%

“…However, the reduced incentive to be less tax aggressive across jurisdictions, as documented by Markle (2016), is not the only incentive arising from worldwide tax systems.…”

Section: Introductionmentioning

confidence: 99%

“…On the one hand, some studies document benefits of a worldwide tax system, such as decreased incidence of income shifting across jurisdictions (Atwood et al 2012;Markle 2016). On the other hand, the worldwide tax system with deferral triggered unintended consequences since multinationals 7 accumulate large amounts of cash overseas waiting for being repatriated when another U.S. tax holiday comes (Fleischer 2012;Kocieniewski 2011;Linebaugh 2012).…”

Section: Introductionmentioning

confidence: 99%

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Why are U.S.-Owned Foreign Subsidiaries Not Tax Aggressive?

Kohlhase

Pierk

2016

SSRN Journal

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Section: Introductionsupporting

confidence: 91%

“…Markle (2016) shows that parent companies subject to worldwide tax systems shift income to a lesser extent than parent companies subject to territorial systems.…”

Section: Introductionmentioning

confidence: 99%

“…However, the reduced incentive to be less tax aggressive across jurisdictions, as documented by Markle (2016), is not the only incentive arising from worldwide tax systems.…”

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Why are U.S.-Owned Foreign Subsidiaries Not Tax Aggressive?

Kohlhase

Pierk

2016

SSRN Journal

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“…Hence, results could be overstated or undervalued, and it may be necessary to control for the other affiliated companies' tax rates. Laeven (2008), De Simone (2016) and Markle (2016) use a measure of the tax incentive that captures all taxes of the countries in which the multinational groups operate (although they do not take into account the tax rate of the other affiliated companies when analysing PS between a subsidiary and its respective parent company, 9 either). Moreover, their measure considers the opportunity for this activity to exist between the different affiliated companies by weighting the tax rates of the countries where they are situated by the level of real economic activity of the affiliates within their borders.…”

Section: Spanish Subsidiary Companiesmentioning

confidence: 99%

Are Spanish companies involved in profit shifting? Consequences in terms of tax revenues

Murciego

Laborda

2017

Economics

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In this paper the authors analyze the existence of profit shifting between Spain and other OECD and EU countries. Using a sample of 1,169 Spanish subsidiaries owned by foreign OECD and EU parent companies and a sample of 317 EU subsidiaries owned by Spanish parent companies, taken from the AMADEUS Database for the period 2005 to 2014, and a simple tax rate difference as a measure of the tax incentive, the authors obtain a negative effect of corporate income taxes on reported profits. When the tax rate differences between Spain and the foreign countries vary by one percentage point, reported profits vary by approximately 2.7 to 3%. This is consistent with profit shifting activity by corporations and matches the empirical results in the literature. Furthermore, the authors calculate the impact of this activity on Spain's tax revenues from the sample of Spanish subsidiary companies. They obtain that the tax revenues vary from year to year, depending on the level of taxation of the main investor countries in Spain in comparison to the Spanish tax rate. IntroductionAmong multinational enterprises (MNEs), profit shifting (PS) is a tax planning strategy within a group consisting of artificially shifting taxable income from entities located in high tax paying countries (basically, countries with high corporate income tax, CIT) to entities located in countries with lower tax rates. The PS phenomenon, like other tax avoidance and evasion devices, causes what is known as Double Non-Taxation, which refers to the minimisation and sometimes zero taxation of certain taxable income (or more generally, taxable object). Where there is PS activity, worldwide CIT revenues become lower because profits are taxed at low tax rates.Nowadays these tax minimizing activities are encouraged by the discrepancy between the features of today's economy and the international taxation standards (based on the Separate Accounting Method) created a century ago, when international exchanges of goods and services were limited and business models were simpler. While the world economy is becoming ever more globalized, current international taxation standards require MNEs to report profits separately in the different jurisdictions in which they operate. This creates an opportunity for MNEs to develop strategies to reduce their tax burden, most of which are legally acceptable, because it is difficult to determine where profits are created. 1 The digitalization of the economy, the complexity of business models and the diversity of tax rules in different jurisdictions (which creates tax loopholes) also make it easier for companies to develop these strategies.Two of the most popular PS mechanisms among MNEs are transfer pricing and thin capitalisation. Transfer prices are the prices that entities set when they exchange services and/or goods within the multinational group, i.e. the prices applicable to related-party transactions, which have to be determined as if the transactions were between independent enterprises, i.e., according to the arm's len...

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

Marchini

Mazza

Medioli

2019

Corp Soc Responsibility Env

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Corruption is a proxy of low detection of opportunistic behavior and may influence managers' decisions. Considering an international scenario, the study investigates whether income shifting between subsidiaries and parents is emphasized for subsidiaries in less corrupted countries. Data refer to groups with the parent company in France, German, Italy, Spain, or UK. Using financial data, tax rate, and country corruption level, linear regression is carried out to determine the impact of corruption on income shifting process. Using anomie theory, this study offers additional evidence that corruption is a symptom of instability and influences managers' decision‐making processes. Managers tend to shift income towards less corrupted countries and so, high bribery reduces the incentive to attract foreign income. These results are novel given we focus on European international groups and not merely on single firms. They confirm the positive effects of responsible business and the attractiveness of countries that control for corruption.

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

Cited by 62 publications

References 11 publications

Why are U.S.-Owned Foreign Subsidiaries Not Tax Aggressive?

Why are U.S.-Owned Foreign Subsidiaries Not Tax Aggressive?

Are Spanish companies involved in profit shifting? Consequences in terms of tax revenues

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

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