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Exploring the role Delaware plays as a domestic tax haven

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  • Dyreng, Scott D.
  • Lindsey, Bradley P.
  • Thornock, Jacob R.
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    Abstract

    We examine whether Delaware is a domestic tax haven. We find that taxes play an economically important role in determining whether U.S. firms locate subsidiaries in Delaware and that a Delaware-based state tax avoidance strategy lowers state effective tax rates by between 0.7 and 1.1 percentage points, on average. The tax savings represent a 15–24% decrease in the state income tax burden and translate to an increase in net income of 1.04–1.47%. However, we find that the tax benefits of Delaware tax strategies are diminishing over time in response to initiatives by state governments to limit multistate tax avoidance.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X13000056
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 108 (2013)
    Issue (Month): 3 ()
    Pages: 751-772

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    Handle: RePEc:eee:jfinec:v:108:y:2013:i:3:p:751-772

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Delaware; Tax haven; Corporate governance; Corporate tax avoidance;

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    References

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    4. Daines, Robert, 2001. "Does Delaware law improve firm value?," Journal of Financial Economics, Elsevier, vol. 62(3), pages 525-558, December.
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    8. Markle, Kevin S. & Shackelford, Douglas A., 2012. "Cross-Country Comparisons Of Corporate Income Taxes," National Tax Journal, National Tax Association, vol. 65(3), pages 493-527, September.
    9. Scott D. Dyreng & Bradley P. Lindsey, 2009. "Using Financial Accounting Data to Examine the Effect of Foreign Operations Located in Tax Havens and Other Countries on U.S. Multinational Firms' Tax Rates," Journal of Accounting Research, Wiley Blackwell, vol. 47(5), pages 1283-1316, December.
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    11. Jennifer Blouin & Linda Krull, 2009. "Bringing It Home: A Study of the Incentives Surrounding the Repatriation of Foreign Earnings Under the American Jobs Creation Act of 2004," Journal of Accounting Research, Wiley Blackwell, vol. 47(4), pages 1027-1059, 09.
    12. Marco Runkel & Guttorm Schjelderup, 2007. "The Choice of Apportionment Factors under Formula Apportionment," CESifo Working Paper Series 2072, CESifo Group Munich.
    13. Mihir A. Desai, 2009. "The Decentering of the Global Firm," The World Economy, Wiley Blackwell, vol. 32(9), pages 1271-1290, 09.
    14. Bebchuk, Lucian Arye & Cohen, Alma, 2003. "Firms' Decisions Where to Incorporate," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 383-425, October.
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