Do Swedish multinationals pay less in taxes than domestic firms?

Abstract

There has been growing concern about multinational enterprises (MNEs) increased use of taxavoidance schemes, enabling them to pay very little tax. MNEs can reduce their tax payments in several ways. For instance, they can shift revenues by overpricing inputs produced in low-tax jurisdictions (transfer pricing), or they can set up favourable internal debt structures to take advantage of differences in interest deductions and interest payments across countries. Such strategic tax-planning activities lead to lost tax revenues in countries with uncompetitive tax systems, and distorted competition vis-a-vis domestic firms that do not have the same possibilities. In response, attempts have been made for international cooperation and coordination of tax laws, strongly initiated by the G20 2012 initiative and the OECD 2013 action plan. 1 Currently, more than a hundred countries collaborate to counteract base erosion and profit shifting (BEPS) by, for example, country-bycountry reporting to mitigate transfer pricing. In addition, several countries have taken unilateral action to restrain MNE cross-border income shifting, typically by restricting interest deductions. 2 The common perception that MNEs engage in strategic tax planning is generally confirmed by research evidence (Devereux, 2006;Heckemeyer & Overesch, 2013;Hines, 1999). There is, however, considerable variation in the empirically quantified magnitudes of tax-planning activities. One challenge is the difficulty in identifying the effects of these activities. Most previous studies have estimated semi-elasticities based on corporate tax-rate differences between home and host country, typically focusing on the impact of tax-rate reductions in the host country. The problem with this method is that it entangles strategic tax planning with the effect a lower corporate tax rate may have on profitability, resulting in an upward bias in the identified profit shifting. In addition, many studies ignore the influence on tax payments of firm-level factors that are not due to strategic tax planning (such as leveraged firms benefiting from interest deductions).In this study, we address these shortcomings. Our approach allows us to detect systematic differences between multinational and domestic firms without relying on changes in corporate tax-rate 1 This action plan involves measures equipping national governments with means to prevent tax erosion and secure that profits are taxed where they are generated by economic activity. 2 For example, Belgium, Germany and Italy have adopted thin capitalisation rules limiting the leverage of multinational firms and other regulations restricting intra-company debt transfers.

Data infrastructure studies on an unequal planet

“…In Ireland, this has come to the fore as multinationals were reportedly charged a fraction of what ordinary consumers paid for bulk electricity from providers during the 2022 to 2023 energy crisis (O’Halloran, 2023), meaning that data centers, which drew 14% of Ireland's energy daily in 2021 and are projected to draw 28% by 2031 (Eirgrid and SONI, 2022: 9), are getting this energy at a discount. Mechanisms like corporate power purchase agreements also secure low corporate pricing by guaranteeing set energy prices years in advance for companies, who are then able to promote their commitments to decarbonization by purchasing renewables like wind generated in rural Ireland (Bresnihan and Brodie, 2021).…”

“…At the state level, these schemes are promoted as a primary strategy for building out renewable energy into the future, as these agreements “can reduce risks and save money and carbon for companies, and can also contribute to accelerating decarbonisation and reducing costs for the wider economy” (Government of Ireland, 2022: 7). According to the Commission for the Regulation of Utilities, “in an open, competitive market, it could not regulate the prices that each supplier charged a particular group” (O’Halloran, 2023). The Irish grid is still primarily powered by fossil fuels like gas, but multinationals are able to secure contracts ostensibly supplying cheap “renewable” power over consumers under the guise of sustainability.…”

Novel Configuration of Formulary Apportionment Using the Correlated Random Effect Approach

“…Scholars have suggested that short-term losses of the total corporate income tax revenue are between 5 and 10% (Cobham and Janský, 2018;Crivelli et al, 2016). In addition, many authors have argued that the status quo favours multinational companies over purely domestic companies, resulting in the overall tax burden borne by multinational and purely domestic companies being significantly different (e.g., Solilová and Nerudová, 2019;Hulya and Hodžić, 2017;Hansson et al, 2017;Egger et al, 2010;Azémar and Corcos, 2009). Reflecting the digitalized context, the European Commission 2 estimated the difference in the tax burden borne by traditional and digital multinational companies.…”