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Headquarter Relocations and International Taxation

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  • Johannes Voget

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    (Oxford University Centre for Business Taxation, CentER, Tilburg University)

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    Abstract

    This paper examines the extent of international headquarter relocations worldwide. About 6 percent of all multinationals relocated their headquarter to another country in the 1997-2007 period. The paper presents empirical evidence on the role of tax in these relocation decisions. It considers a sample of 140 multinationals that relocated their headquarters over the past decade and compares them to a control group of 1943 multinationals that have not done so. It is found that the additional tax due in the home country upon repatriation of foreign profits has a positive effect on the probability of relocation. The empirical results suggest that an increase in the repatriation tax by 10 percentage points would raise the share of relocating multinationals by 2.2 percentage points, equivalent to an increase in the number of relocations by more than one third. Furthermore, the introduction of controlled foreign corporation legislation also has a positive effect on the number of relocations.

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    Bibliographic Info

    Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1008.

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    Date of creation: 2010
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    Handle: RePEc:btx:wpaper:1008

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    Keywords: international taxation; headquarter relocation; multinational; corporate inversion; controlled foreign corporation;

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    1. Grubert, Harry, 2003. "Intangible Income, Intercompany Transactions, Income Shifting, and the Choice of Location," National Tax Journal, National Tax Association, vol. 56(1), pages 221-42, March.
    2. Strauss-Kahn, Vanessa & Vives, Xavier, 2005. "Why and Where do Headquarters Move?," CEPR Discussion Papers 5070, C.E.P.R. Discussion Papers.
    3. Seida, Jim A. & Wempe, William F., 2004. "Effective Tax Rate Changes and Earnings Stripping Following Corporate Inversion," National Tax Journal, National Tax Association, vol. 57(4), pages 805-28, December.
    4. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
    5. Grubert, Harry, 2005. "Comment on Desai and Hines, "Old Rules and New Realities: Corporate Tax Policy in a Global Setting"," National Tax Journal, National Tax Association, vol. 58(2), pages 263-74, June.
    6. Huizinga, Harry & Voget, Johannes, 2006. "International Taxation and the Direction and Volume of Cross-Border M&As," CEPR Discussion Papers 5974, C.E.P.R. Discussion Papers.
    7. Rosanne Altshuler & Harry Grubert, 2001. "Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy," NBER Working Papers 8144, National Bureau of Economic Research, Inc.
    8. Davis, James C. & Henderson, J. Vernon, 2008. "The agglomeration of headquarters," Regional Science and Urban Economics, Elsevier, vol. 38(5), pages 445-460, September.
    9. Lovely, Mary E. & Rosenthal, Stuart S. & Sharma, Shalini, 2005. "Information, agglomeration, and the headquarters of U.S. exporters," Regional Science and Urban Economics, Elsevier, vol. 35(2), pages 167-191, March.
    10. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
    11. Leon Shilton & Craig Stanley, 1999. "Spatial Patterns of Headquarters," Journal of Real Estate Research, American Real Estate Society, vol. 17(3), pages 341-364.
    12. Desai, Mihir A. & Hines, James R. Jr., 2002. "Expectations and Expatriations: Tracing the Causes and Consequences of Corporate Inversions," National Tax Journal, National Tax Association, vol. 55(3), pages 409-40, September.
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