Income Shifting in U.S. Multinational Corporations
It is often claimed that multinational firms avoid taxes by shifting income from high-tax to low-tax countries. Using a five year panel of data for two hundred large U.S. manufacturing firms, we find that U.S. tax liability, as a fraction either of U.S. sales or U.S. assets, is related to the location of foreign subsidiaries in a way that is consistent with tax-motivated income shifting. Having a subsidiary in a tax haven, Ireland, or one of the "four dragon" Asian countries - all characterized by low tax rates - is associated with lower U.S. tax ratios. Having a subsidiary in a high-tax region is associated with higher U.S. tax ratios. These results suggest that U.S. manufacturing companies shift income out of high-tax countries into the U.S., and from the U.S. to low-tax countries. Such behavior certainly lowers worldwide tax liabilities for larger U.S. manufacturing companies and appears to significantly lower their U.S. tax liabilities as well.
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- Hines, J.R. & Rice, E.M., 1990.
"Fiscal Paradise: Foreign Tax Havens And American Business,"
56, Princeton, Woodrow Wilson School - Discussion Paper.
- 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.
- James R. Hines, Jr. & Eric M. Rice, 1990. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc.
- Morck, Randall & Yeung, Bernard, 1992. "Internalization : An event study test," Journal of International Economics, Elsevier, vol. 33(1-2), pages 41-56, August.
- 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.
- Morck, R. & Yeung, B., 1991.
"Why Investors Value Multinationality,"
282, Research Seminar in International Economics, University of Michigan.
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