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The Impact of Headquarter and Subsidiary Locations on Multinationals' Effective Tax Rates

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  • Kevin S. Markle
  • Douglas A. Shackelford

Abstract

We examine effective tax rates (ETRs) for 9,022 multinationals from 87 countries from 2006 to 2011. We find that, despite extensive investments in international tax avoidance, multinationals headquartered in Japan, the U.S., and some high-tax European countries continue to face substantially higher worldwide taxes than their counterparts in havens and other less heavily taxed locations. Other findings include: (a) Effective tax rates remained steady over the investigation period; (b) Entering a tax haven country for the first time results in a slight reduction in the firm's ETR; (c) ETR changes vary depending on whether the subsidiary is a financial conduit or an operating subsidiary. These results should aid ongoing international tax policy debates and expand scholars' understanding about the taxation of multinationals.

Suggested Citation

  • Kevin S. Markle & Douglas A. Shackelford, 2013. "The Impact of Headquarter and Subsidiary Locations on Multinationals' Effective Tax Rates," NBER Working Papers 19621, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19621
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    References listed on IDEAS

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    1. Desai, Mihir A. & Foley, C. Fritz & Hines, James Jr., 2006. "The demand for tax haven operations," Journal of Public Economics, Elsevier, vol. 90(3), pages 513-531, February.
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    3. Collins, Julie H. & Shackelford, Douglas A., 1997. "Global organizations and taxes: An analysis of the dividend, interest, royalty, and management fee payments between U.S. multinationals' foreign affiliates," Journal of Accounting and Economics, Elsevier, vol. 24(2), pages 151-173, December.
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    5. Scott D. Dyreng & Bradley P. Lindsey, 2009. "Using Financial Accounting Data to Examine the Effect of Foreign Operations Located in Tax Havens and Other Countries on U.S. Multinational Firms' Tax Rates," Journal of Accounting Research, Wiley Blackwell, vol. 47(5), pages 1283-1316, December.
    6. Desai, Mihir A. & Hines, James R. Jr., 2002. "Expectations and Expatriations: Tracing the Causes and Consequences of Corporate Inversions," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(3), pages 409-440, September.
    7. 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.
    8. Graham, John R. & Raedy, Jana S. & Shackelford, Douglas A., 2012. "Research in accounting for income taxes," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 412-434.
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    1. repec:prg:jnlefa:v:2017:y:2017:i:4:id:199:p:31-46 is not listed on IDEAS

    More about this item

    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
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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