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

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  • Kevin S Markle

    (Dartmouth College)

Abstract

This paper tests for differences in the tax-motivated income shifting behaviors of multinationals subject to different systems of taxing foreign earnings. I find that multinationals subject to territorial tax regimes shift more income than those subject to worldwide tax regimes, but that the difference in shifting is not statistically different when the worldwide firms can defer repatriation of the shifted income. I also find that the difference in shifting is greater when the multinational is cash-constrained in its home country. In additional tests, I find that worldwide firms bear the dead-weight cost of having cash trapped in foreign subsidiaries while territorial firms do not.

Suggested Citation

  • Kevin S Markle, 2012. "A Comparison of the Tax-motivated Income Shifting of Multinationals in Territorial and Worldwide Countries," Working Papers 1206, Oxford University Centre for Business Taxation.
    • Handle: RePEc:btx:wpaper:1206
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    References listed on IDEAS

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    Cited by:

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    3. Jost H. Heckemeyer & Michael Overesch, 2017. "Multinationals profit response to tax differentials: Effect size and shifting channels," Canadian Journal of Economics, Canadian Economics Association, vol. 50(4), pages 965-994, November.
    4. Jost H. Heckemeyer & Michael Overesch, 2017. "Multinationals’ profit response to tax differentials: Effect size and shifting channels," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(4), pages 965-994, November.
    5. Thomas Tørsløv & Ludvig Wier & Gabriel Zucman, 2023. "The Missing Profits of Nations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(3), pages 1499-1534.
    6. Heckemeyer, Jost H. & Overesch, Michael, 2013. "Multinationals' profit response to tax differentials: Effect size and shifting channels," ZEW Discussion Papers 13-045, ZEW - Leibniz Centre for European Economic Research.
    7. Dhammika Dharmapala, 2014. "What Do We Know about Base Erosion and Profit Shifting? A Review of the Empirical Literature," Fiscal Studies, Institute for Fiscal Studies, vol. 35, pages 421-448, December.
    8. Dowd, Tim & Landefeld, Paul & Moore, Anne, 2017. "Profit shifting of U.S. multinationals," Journal of Public Economics, Elsevier, vol. 148(C), pages 1-13.

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