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Taxing multinationals beyond borders: financial and locational responses to CFC rules

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  • Sarah Clifford

    (Department of Economics, University of Copenhagen)

Abstract

Using a large panel dataset on worldwide operations of multinational firms, this paper studies one of the most advocated anti-tax-avoidance measures: Controlled Foreign Corporation rules. By including income of foreign low-tax subsidiaries in the domestic tax base, these rules create incentives for multinationals to move income away from low-tax environments. Exploiting variation around the tax threshold used to identify low-tax subsidiaries, we find that multinationals redirect profits into subsidiaries just above the threshold and place more new subsidiaries just above compared to just below the threshold. The resulting increase in global corporate tax revenue partly accrues to the rule-enforcing country.

Suggested Citation

  • Sarah Clifford, 2017. "Taxing multinationals beyond borders: financial and locational responses to CFC rules," EPRU Working Paper Series 17-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:17-02
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    File URL: http://web.econ.ku.dk/eprn_epru/Workings_Papers/WP-2017-02.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    CFC legislation; Multinational firms; Tax avoidance; Corporate taxation;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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