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Saving Taxes Through Foreign Plant Ownership

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Author Info
Peter Egger ()
Wolfgang Eggert ()
Hannes Winner ()

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Abstract

This paper analyzes to which extent foreign plant ownership involves lower tax payments than domestic plant ownership. We employ a model of endogenous foreign subsidiary ownership to derive a set of empirically testable hypotheses about the differential taxation of foreign- and domestically-owned subsidiaries. We assess these hypotheses in a data- set of 33,577 European foreign- and domestically-owned manufacturing plants. We identify a significant tax-saving of endogenous foreign owner- ship. On average, foreign owners pay 594 Euros per employee or about 56 percent less than domestic owners of similar subsidiaries. This effect is larger in thinner markets with fewer plants, in markets with a greater relative presence of foreign owners, and for foreign owners of larger plants.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1887.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1887

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Related research
Keywords: company taxation; multinational firms; propensity score matching;

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Find related papers by JEL classification:
C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-25, April.
    Other versions:
  2. Weichenrieder, Alfons J., 1998. "Foreign profits and domestic investment," Journal of Public Economics, Elsevier, vol. 69(3), pages 451-463, September. [Downloadable!] (restricted)
  3. Ronald B. Davies, 2003. "The OECD Model Tax Treaty: Tax Competition And Two-Way Capital Flows," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 725-753, 05. [Downloadable!] (restricted)
  4. Bond, E.W. & Samuelson, L., 1988. "Strategic Behavior And The Rules For International Taxation Of Capital," Papers 3-88-10, Pennsylvania State - Department of Economics.
    Other versions:
  5. Sam Bucovetsky & Andreas Haufler, 2006. "Preferential Tax Regimes with Asymmetric Countries," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  6. Alfons Weichenrieder, 1996. "Fighting international tax avoidance," Fiscal Studies, Institute for Fiscal Studies, vol. 17(1), pages 37-58, February. [Downloadable!]
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    Other versions:
  9. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January. [Downloadable!] (restricted)
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  10. Eric J. Bartelsman & Roel M.W.J. Beetsma, 2000. "Why pay more? Corporate Tax Avoidance through Transfer Pricing in OECD Countries," Tinbergen Institute Discussion Papers 00-054/2, Tinbergen Institute. [Downloadable!]
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  12. Girma, Sourafel & Görg, Holger, 2006. "Evaluating the Foreign Ownership Wage Premium Using a Difference-in-Differences Matching Approach," CEPR Discussion Papers 5788, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Bucovetsky, Sam & Haufler, Andreas, 2005. "Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed?," Discussion Papers in Economics 729, University of Munich, Department of Economics. [Downloadable!]
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  15. Richard Blundell & Mónica Costa Dias, 2008. "Alternative Approaches to Evaluation in Empirical Microeconomics," CETE Discussion Papers 0805, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
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  16. Eckhard Janeba & Michael Smart, 2003. "Is Targeted Tax Competition Less Harmful than its Remedies?," Asia-Pacific Financial Markets, Springer, vol. 10(3), pages 259-280, May. [Downloadable!] (restricted)
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  17. Jack M. Mintz & Michael Smart, 2001. "Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada," International Tax Program Papers 0402, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto, revised Apr 2003. [Downloadable!]
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  18. Ronald B. Davies, 2004. "Tax Treaties and Foreign Direct Investment: Potential versus Performance," International Tax and Public Finance, Springer, vol. 11(6), pages 775-802, November. [Downloadable!]
    Other versions:
  19. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Blackwell Publishing, vol. 65(2), pages 261-94, April. [Downloadable!] (restricted)
  20. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete Over Corporate Tax Rates?," The Warwick Economics Research Paper Series (TWERPS) 642, University of Warwick, Department of Economics. [Downloadable!]
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  21. James R. Hines, Jr. & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  22. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November. [Downloadable!] (restricted)
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  24. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andreas Haufler & Marco Runkel, 2008. "Firms’ Financial Choices and Thin Capitalization Rules under Corporate Tax Competition," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Harry Huizinga & Johannes Voget & Wolf Wagner, 2008. "International Taxation and Takeover Premiums in Cross-border M&As," Working Papers 0826, Oxford University Centre for Business Taxation. [Downloadable!]
    Other versions:
  3. Andreas Haufler, 2007. "Sollen multinationale Unternehmen weniger Steuern bezahlen?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 76(2), pages 8-20. [Downloadable!] (restricted)
  4. Dischinger, Matthias, 2008. "Profit Shifting by Multinationals and the Ownership Share: Evidence from European Micro Data," Discussion Papers in Economics 2029, University of Munich, Department of Economics. [Downloadable!]
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