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Taxable income differences between foreign and domestic controlled corporations in Norway

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  • John Christian Langli
  • Shahrokh Saudagaran

Abstract

Studies mainly in the United States and United Kingdom have documented that foreign controlled corporations (FCCs) report significantly lower taxable income compared to domestic controlled corporations (DCCs). This taxable income differential has been partly attributed to income shifting by multinational corporations. Using a sample of 78,879 firm-year observations from 1993 to 1996, we find similar systematic differences for firms in the manufacturing, retail and wholesale sectors in Norway. The taxable income to sales ratio is approximately 2.6 percentage points lower for FCCs compared to DCCs after controlling for start-up costs, size, industry affiliation, leverage and capital intensity. The results are statistically significant in all years and independent of whether taxable income is measured as a fraction of sales, total assets or book value of equity. Previous research has indicated that income shifting is more prevalent among large firms. This study provides evidence on small and medium-sized firms operating in Norway. With the exception of really small corporations in the manufacturing industry (e.g. with sales less than 6.7 million NOK or US$1 million), we find that the negative taxable income differential exists independent of the size of the corporations.

Suggested Citation

  • John Christian Langli & Shahrokh Saudagaran, 2004. "Taxable income differences between foreign and domestic controlled corporations in Norway," European Accounting Review, Taylor & Francis Journals, vol. 13(4), pages 713-741.
  • Handle: RePEc:taf:euract:v:13:y:2004:i:4:p:713-741
    DOI: 10.1080/0963818042000237115
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    References listed on IDEAS

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    4. David Harris & Randall Morck & Joel B. Slemrod, 1993. "Income Shifting in U.S. Multinational Corporations," NBER Chapters,in: Studies in International Taxation, pages 277-308 National Bureau of Economic Research, Inc.
    5. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 149-182.
    6. Harry Grubert & Timothy Goodspeed & Deborah L. Swenson, 1993. "Explaining the Low Taxable Income of Foreign-Controlled Companies in the United States," NBER Chapters,in: Studies in International Taxation, pages 237-276 National Bureau of Economic Research, Inc.
    7. Steven Globerman & Daniel Shapiro, 2003. "Governance infrastructure and US foreign direct investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 34(1), pages 19-39, January.
    8. Goodspeed, T-J & White, A-D, 1996. "International taxation," Papers 96-11, Wellesley College - Department of Economics.
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    Cited by:

    1. Arnt Ove Hopland & Petro Lisowsky & Mohammed Mardan & Dirk Schindler, 2014. "Income Shifting under Losses," CESifo Working Paper Series 5130, CESifo Group Munich.
    2. Overesch Michael, 2016. "Steuervermeidung multinationaler Unternehmen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(2), pages 129-143, July.
    3. Costel Istrate, 2011. "Substance Over Form In A Romanian Book-Tax Approach," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 2011, pages 29-39, july.

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