On the dynamics between local and international tax planning in multinational corporations

Abstract

The international dimension of multinational corporations creates opportunities for pursuing both global as well as local (i.e., unilateral subsidiary country) tax planning strategies. To date, however, researchers have limited insights into both the dynamics and relative importance of one versus another strategy for multinationals. We propose and test a group-level ETR-based measure of profit shifting and validate it by showing it correctly identifies profit shifting reductions when shifting costs increase. We confirm that multinationals can keep group ETRs stable after the introduction of tighter tax compliance and documentation rules and suggest they can do so by relying relatively more on local tax planning. In line with the substitution argument, we document that especially groups identified as ex-ante income shifters as well as those with greater target ETR pressure are responsible for the results.

Understanding of Tax Regulations, Tax Administration and Taxpayer Morale towards Tax Planning

“…Tax planning refers to tax optimization schemes that do not require investment in cross-jurisdictional profit shifting. In essence, it belongs to a set of jurisdiction-specific tax advantage schemes that are generally available to any company operating in a certain area or to corporations that meet certain conditions (Beuselinck & Pierk, 2022).…”

Corporate Social Responsibility and Profit Shifting

“…For a thorough review regarding the local (within-country) tax avoidance and international (across countries) profit shifting seeBeuselinck and Pierk (2018).…”