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Foreign Taxes and the Growing Share of U.S. Multinational Company Income Abroad: Profits, Not Sales, Are Being Globalized


  • Grubert, Harry


The foreign share of the worldwide income of U.S. multinational corporations (MNCs) has risen sharply in recent years. Data from a panel of 754 large MNCs indicate that the MNC foreign income share increased by 14 percentage points from 1996 to 2004. The differential between a company’s U.S. and foreign effective tax rates exerts a significant effect on the share of its income abroad, largely through changes in foreign and domestic profit margins rather than a shift in sales. U.S.-foreign tax differentials are estimated to have raised the foreign share of MNC worldwide income by about 12 percentage points by 2004. Lower foreign effective tax rates had no significant effect on a company’s domestic sales or on the growth of its worldwide pre-tax profits. Lower taxes on foreign income do not seem to promote "competitiveness."

Suggested Citation

  • Grubert, Harry, 2012. "Foreign Taxes and the Growing Share of U.S. Multinational Company Income Abroad: Profits, Not Sales, Are Being Globalized," National Tax Journal, National Tax Association, vol. 65(2), pages 247-281, June.
  • Handle: RePEc:ntj:journl:v:65:y:2012:i:2:p:247-81

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    References listed on IDEAS

    1. Clausing, Kimberly A., 2009. "Multinational Firm Tax Avoidance and Tax Policy," National Tax Journal, National Tax Association, vol. 62(4), pages 703-725, December.
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    Cited by:

    1. Haufler, Andreas & Mardan, Mohammed & Schindler, Dirk, 2016. "Optimal Policies against Profit Shifting: The Role of Controlled-Foreign-Company Rules," Discussion Papers in Economics 27745, University of Munich, Department of Economics.
    2. Harry Grubert & Rosanne Altshuler, 2013. "Fixing the System: An Analysis of Alternative Proposals for the Reform of International Tax," National Tax Journal, National Tax Association, vol. 66(3), pages 671-712, September.
    3. Gary Clyde Hufbauer & Euijin Jung & Tyler Moran & Martian Vieiro, 2015. "The OECD's "Action Plan" to Raise Taxes on Multinational Corporations," Working Paper Series WP15-14, Peterson Institute for International Economics.
    4. Thornton Matheson & Victoria Perry & Chandara Veung, 2014. "Territorial versus worldwide corporate taxation: Implications for developing countries," Chapters,in: Taxation and Development: The Weakest Link?, chapter 5, pages 147-169 Edward Elgar Publishing.
    5. Harry Grubert, 2014. "Book Review: Fixing U.S. International Taxation by Daniel N. Shaviro (Oxford University Press, 2014, New York, Ny, 223 Pages)," National Tax Journal, National Tax Association, vol. 67(3), pages 745-754, September.
    6. von Hagen, Dominik & Harendt, Christoph, 2017. "Impact of controlled foreign corporation rules on post-acquisition investment and profit shifting in targets," ZEW Discussion Papers 17-062, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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