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Multinational Tax Avoidance and Anti-Avoidance Enforcement: Firm-level Evidence from Developing ASEAN Countries

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  • Athiphat Muthitacharoen
  • Krislert Samphantharak

Abstract

We use firm-level data from ASEAN5 to examine the significance of tax-motivated profit shifting by multinational enterprises and to analyze how anti-avoidance measures mitigate the profit shifting. We show that (1) tax-motivated profit shifting is statistically and economically significant, especially for manufacturing firms, (2) auditing and transfer-pricing scrutiny is more effective in reducing profit shifting than documentation requirement alone, and (3) tax-motivated profit shifting is prominent for large firms, while anti-tax avoidance measures result in the absence of profit shifting detected from small manufacturing firms. The findings have important implications for developing countries with weak governance but dependent on MNEs.

Suggested Citation

  • Athiphat Muthitacharoen & Krislert Samphantharak, 2019. "Multinational Tax Avoidance and Anti-Avoidance Enforcement: Firm-level Evidence from Developing ASEAN Countries," PIER Discussion Papers 111, Puey Ungphakorn Institute for Economic Research.
    • Handle: RePEc:pui:dpaper:111
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    1. Niels Johannesen & Thomas Tørsløv & Ludvig Wier, 2016. "Are less developed countries more exposed to multinational tax avoidance? Method and evidence from micro-data," WIDER Working Paper Series 010a, World Institute for Development Economic Research (UNU-WIDER).
    2. Fuest, Clemens & Hebous, Shafik & Riedel, Nadine, 2011. "International debt shifting and multinational firms in developing economies," Economics Letters, Elsevier, vol. 113(2), pages 135-138.
    3. Niels Johannesen & Thomas Tørsløv & Ludvig Wier, 0. "Are Less Developed Countries More Exposed to Multinational Tax Avoidance? Method and Evidence from Micro-Data," The World Bank Economic Review, World Bank, vol. 34(3), pages 790-809.
    4. Lohse, Theresa & Riedel, Nadine, 2012. "The impact of transfer pricing regulations on profit shifting within European multinationals," FZID Discussion Papers 61-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    5. Huizinga, Harry & Laeven, Luc, 2008. "International profit shifting within multinationals: A multi-country perspective," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1164-1182, June.
    6. Ernesto Crivelli & Ruud De Mooij & Michael Keen, 2016. "Base Erosion, Profit Shifting and Developing Countries," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 72(3), pages 268-301, September.
    7. Niels Johannesen & Thomas Tørsløv & Ludvig Wier, 2016. "Are less developed countries more exposed to multinational tax avoidance? Method and evidence from micro-data," WIDER Working Paper Series 010, World Institute for Development Economic Research (UNU-WIDER).
    8. Åsa Johansson & Øystein Bieltvedt Skeie & Stéphane Sorbe & Carlo Menon, 2017. "Tax planning by multinational firms: Firm-level evidence from a cross-country database," OECD Economics Department Working Papers 1355, OECD Publishing.
    9. Kenneth J. Klassen & Stacie K. Laplante, 2012. "Are U.S. Multinational Corporations Becoming More Aggressive Income Shifters?," Journal of Accounting Research, Wiley Blackwell, vol. 50(5), pages 1245-1285, December.
    10. Devan Mescall & Kenneth J. Klassen, 2018. "How Does Transfer Pricing Risk Affect Premiums in Cross‐Border Mergers and Acquisitions?," Contemporary Accounting Research, John Wiley & Sons, vol. 35(2), pages 830-865, June.
    11. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 149-182.
    12. Niels Johannesen & Thomas Tørsløv & Ludvig Wier, 2016. "Are less developed countries more exposed to multinational tax avoidance? Method and evidence from micro-data," WIDER Working Paper Series 010b (Revised version May, World Institute for Development Economic Research (UNU-WIDER).
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    Cited by:

    1. Athiphat Muthitacharoen, 2021. "Tax rate cut and firm investment: evidence from Thailand," Applied Economics Letters, Taylor & Francis Journals, vol. 28(3), pages 220-224, February.
    2. Athiphat Muthitacharoen, 2020. "Assessing Tax Burden Differential Between Foreign Multinationals and Local Firms: Implications for FDI Tax Incentives," PIER Discussion Papers 127, Puey Ungphakorn Institute for Economic Research.

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    More about this item

    Keywords

    Profit Shifting; Tax Avoidance; Auditing; Transfer Pricing; Multinational Enterprise;
    All these keywords.

    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
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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