Arnt O. Hopland, Petro Lisowsky, M. Mardan, Dirk Schindler
This study develops theory and discusses implications of flexibility in income shifting for multinational corporations that have both profit- and loss-making affiliates. Our theoretical model shows that when multinationals do not have flexibility to adjust their income-shifting strategies within a tax year in response to losses (i.e., they must implement 'ex-ante' income-shifting strategies), they take the expected loss-adjusted tax rate differential into account rather than the larger statutory tax rate differential. This central finding suggests that prior empirical studies using the statutory tax rate differential risk underestimating the tax sensitivity of income shifting. We also find that flexibility to adjust income-shifting strategies to losses has important implications for how and why the profit distribution of multinationals' affiliates differs from domestic corporations: Under inflexibility, some affiliates will form a fat tail in the loss part of the distribution. Finally, we provide guidance for future empirical work based on our theoretical predictions.
{"title":"Implications of Flexibility in Income Shifting under Losses","authors":"Arnt O. Hopland, Petro Lisowsky, M. Mardan, Dirk Schindler","doi":"10.2139/ssrn.3327666","DOIUrl":"https://doi.org/10.2139/ssrn.3327666","url":null,"abstract":"This study develops theory and discusses implications of flexibility in income shifting for multinational corporations that have both profit- and loss-making affiliates. Our theoretical model shows that when multinationals do not have flexibility to adjust their income-shifting strategies within a tax year in response to losses (i.e., they must implement 'ex-ante' income-shifting strategies), they take the expected loss-adjusted tax rate differential into account rather than the larger statutory tax rate differential. This central finding suggests that prior empirical studies using the statutory tax rate differential risk underestimating the tax sensitivity of income shifting. We also find that flexibility to adjust income-shifting strategies to losses has important implications for how and why the profit distribution of multinationals' affiliates differs from domestic corporations: Under inflexibility, some affiliates will form a fat tail in the loss part of the distribution. Finally, we provide guidance for future empirical work based on our theoretical predictions.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-02-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132178973","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Netherlands tax environment for multinational foreign directive investment (FDI) has been characterized as ‘a tax haven’ or, perhaps more accurately, as a ‘conduit financial centre’. Anyway, with a share of 25% in the worldwide market for tax-driven FDI diversion, the Dutch tax planning industry has become a prominent target of recent OECD and EU anti-avoidance measures. Adaptations in many of the relevant Dutch tax rules are by now under way. The paper aims at the interactions between (a) the making of the relevant tax environment and (b) the rise of a specialized industry for FDI tax planning over the last century. The basic mechanism will be shown to be simple. A century ago, Dutch rules for taxation of cross-border FDI started to develop from a consistent view: FDI should not be hindered by tax borders. This served the interests of a small open economy hosting many internationally successful enterprises. A specialized tax planning industry only emerged in the second half of the 20th century as a by-product of international tax policies aimed at substantial business interests. But as this industry grew, its role in shaping and re-shaping the relevant rules increased. Only very recently, this role has begun to decline due to both international policy pressure and national public opinion. Issues to be discussed from this perspective include the development of Dutch tax treaty policy, the Dutch position in international tax coordination processes, and the development of relevant rules in Dutch tax law, starting with the first Dutch income tax law (1893/4) and with a focus on post-1945 developments.
{"title":"How The Netherlands Became a Tax Haven for Multinationals","authors":"J. Vleggeert, H. Vording","doi":"10.2139/SSRN.3317629","DOIUrl":"https://doi.org/10.2139/SSRN.3317629","url":null,"abstract":"The Netherlands tax environment for multinational foreign directive investment (FDI) has been characterized as ‘a tax haven’ or, perhaps more accurately, as a ‘conduit financial centre’. Anyway, with a share of 25% in the worldwide market for tax-driven FDI diversion, the Dutch tax planning industry has become a prominent target of recent OECD and EU anti-avoidance measures. Adaptations in many of the relevant Dutch tax rules are by now under way. \u0000 \u0000The paper aims at the interactions between (a) the making of the relevant tax environment and (b) the rise of a specialized industry for FDI tax planning over the last century. The basic mechanism will be shown to be simple. A century ago, Dutch rules for taxation of cross-border FDI started to develop from a consistent view: FDI should not be hindered by tax borders. This served the interests of a small open economy hosting many internationally successful enterprises. A specialized tax planning industry only emerged in the second half of the 20th century as a by-product of international tax policies aimed at substantial business interests. But as this industry grew, its role in shaping and re-shaping the relevant rules increased. Only very recently, this role has begun to decline due to both international policy pressure and national public opinion. \u0000 \u0000Issues to be discussed from this perspective include the development of Dutch tax treaty policy, the Dutch position in international tax coordination processes, and the development of relevant rules in Dutch tax law, starting with the first Dutch income tax law (1893/4) and with a focus on post-1945 developments.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-01-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116648020","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Good Place is a new Netflix – series. A fantastic sitcom with Ted Danson in an impressive lead role as (Arch angel) Michael. In the series Eleanor Shellstrop (Kristen Bell) has died and ends up – by mistake – in the Good Place. Michael explains how it works. All actions of people are valued with plus and minus points. At the end of your life, all plus and minus – points are added up and if you have a sufficient balance you end upon in the Good Place. Committing genocide is minus 434.484,45. Use of Facebook as a verb: minus 5,55. Remaining loyal to the Cleveland Browns plus 53,83 and remembering your sister’s birthday plus 0,04. One of the other indicators of really bad people is that they take off both shoes and socks in the plane. It is tempting to use this system to assess the current international tax system and the main actors in this play. We will focus primarily on the Ted Danson of international tax: the OECD and its claim to fame: BEPS. What would be the score of say Pascal St Amans?
{"title":"The Good Place or the Bad Place? The Ted Danson of International Tax: The OECD and its Claim to Fame, BEPS.","authors":"Paul de Haan, G. Heij","doi":"10.2139/SSRN.3303014","DOIUrl":"https://doi.org/10.2139/SSRN.3303014","url":null,"abstract":"The Good Place is a new Netflix – series. A fantastic sitcom with Ted Danson in an impressive lead role as (Arch angel) Michael. In the series Eleanor Shellstrop (Kristen Bell) has died and ends up – by mistake – in the Good Place. Michael explains how it works. All actions of people are valued with plus and minus points. At the end of your life, all plus and minus – points are added up and if you have a sufficient balance you end upon in the Good Place. Committing genocide is minus 434.484,45. Use of Facebook as a verb: minus 5,55. Remaining loyal to the Cleveland Browns plus 53,83 and remembering your sister’s birthday plus 0,04. One of the other indicators of really bad people is that they take off both shoes and socks in the plane. It is tempting to use this system to assess the current international tax system and the main actors in this play. We will focus primarily on the Ted Danson of international tax: the OECD and its claim to fame: BEPS. What would be the score of say Pascal St Amans?","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-12-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114471404","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper traces the history of international corporate taxation, discusses how transnational corporations (TNCs), through their tax advisers, have helped to shape the system, and suggests that this is important in understanding the development of TNCs. It argues that a key competitive advantage of TNCs is their ability to exploit differences in corporate tax rules, as a form of regulatory arbitrage, which is facilitated by the inadequate coordination of those rules. It focuses on the divergence between the understanding in business, economics and international studies that TNCs are unitary firms and the principle which has increasingly hardened in international tax rules, especially on transfer pricing, that the various affiliates of TNCs in different countries should be treated as if they were independent entities dealing with each other at arm’s length. It argues that this facilitates tax avoidance, which is one of the strategies of the exploitation of regulatory differences, or regulatory arbitrage, which has contributed to the growth and oligopolistic dominance of large TNCs. While claiming that they merely obey the laws of each country where they do business, TNCs have taken advantage of their global reach to mould laws and normative practices, and develop structures taking maximum advantage of the loose coordination of global governance regimes.
{"title":"International Tax, Regulatory Arbitrage and the Growth of Transnational Corporations","authors":"S. Picciotto","doi":"10.18356/7B01478A-EN","DOIUrl":"https://doi.org/10.18356/7B01478A-EN","url":null,"abstract":"This paper traces the history of international corporate taxation, discusses how transnational corporations (TNCs), through their tax advisers, have helped to shape the system, and suggests that this is important in understanding the development of TNCs. It argues that a key competitive advantage of TNCs is their ability to exploit differences in corporate tax rules, as a form of regulatory arbitrage, which is facilitated by the inadequate coordination of those rules. It focuses on the divergence between the understanding in business, economics and international studies that TNCs are unitary firms and the principle which has increasingly hardened in international tax rules, especially on transfer pricing, that the various affiliates of TNCs in different countries should be treated as if they were independent entities dealing with each other at arm’s length. It argues that this facilitates tax avoidance, which is one of the strategies of the exploitation of regulatory differences, or regulatory arbitrage, which has contributed to the growth and oligopolistic dominance of large TNCs. While claiming that they merely obey the laws of each country where they do business, TNCs have taken advantage of their global reach to mould laws and normative practices, and develop structures taking maximum advantage of the loose coordination of global governance regimes.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131843248","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Secrecy jurisdictions provide services that enable the residents of other countries to escape the laws and regulations of their home economies, evade tax, or hide their legally or illegally obtained assets. Recent offshore leaks offer only a limited and biased view of the world of financial secrecy. In this paper we quantify which secrecy jurisdictions provide secrecy to which countries and assess how successful countries are in targeting these jurisdictions with their policies. To that objective we develop the Bilateral Financial Secrecy Index (BFSI) and estimate it for 86 countries by quantifying the financial secrecy supplied to them by up to 100 secrecy jurisdictions. We then evaluate two major recent policy efforts by comparing them with the results of the BFSI. First, we focus on the blacklisting process of the European Commission and find that most of the important secrecy jurisdictions for EU member states have been identified by the lists. Second, we link the results to data on active bilateral automatic information exchange treaties to assess how well-aimed are the policymakers’ limited resources. We argue that while low-secrecy jurisdictions’ gains are maximized if a large share of received secrecy is covered by automatic information exchange, tax havens aim not to activate these relationships with countries to which they supply secrecy. Our results show that so far, some major secrecy jurisdictions successfully keep their most prominent relationships uncovered by automatic information exchange, and activating these relationships may thus be an effective tool to curb secrecy.
{"title":"Is Panama Really Your Tax Haven? Secrecy Jurisdictions and the Countries They Harm","authors":"P. Janský, M. Meinzer, Miroslav Palanský","doi":"10.2139/ssrn.3267366","DOIUrl":"https://doi.org/10.2139/ssrn.3267366","url":null,"abstract":"Secrecy jurisdictions provide services that enable the residents of other countries to escape the laws and regulations of their home economies, evade tax, or hide their legally or illegally obtained assets. Recent offshore leaks offer only a limited and biased view of the world of financial secrecy. In this paper we quantify which secrecy jurisdictions provide secrecy to which countries and assess how successful countries are in targeting these jurisdictions with their policies. To that objective we develop the Bilateral Financial Secrecy Index (BFSI) and estimate it for 86 countries by quantifying the financial secrecy supplied to them by up to 100 secrecy jurisdictions. We then evaluate two major recent policy efforts by comparing them with the results of the BFSI. First, we focus on the blacklisting process of the European Commission and find that most of the important secrecy jurisdictions for EU member states have been identified by the lists. Second, we link the results to data on active bilateral automatic information exchange treaties to assess how well-aimed are the policymakers’ limited resources. We argue that while low-secrecy jurisdictions’ gains are maximized if a large share of received secrecy is covered by automatic information exchange, tax havens aim not to activate these relationships with countries to which they supply secrecy. Our results show that so far, some major secrecy jurisdictions successfully keep their most prominent relationships uncovered by automatic information exchange, and activating these relationships may thus be an effective tool to curb secrecy.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-10-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121794587","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Against the backdrop of corporate tax policy changes in India, the paper attempts to measure the incidence of corporate income tax in India under a general equilibrium setting. Using seemingly uncorrelated regression coefficients and dynamic panel estimates, we tried to analyze both the relative burden of corporate tax borne by capital and labor and the efficiency effects of corporate income tax. The data for the study is compiled from corporate firms listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) for the period 2000–15. Our empirical estimates suggest that in India capital bears more of the burden of corporate taxes than labor. However, the results vary with different proxies of capital used in the models. Though it is contrary to the Harberger (1962) hypothesis that the burden of corporate tax is shifted to labor rather than capital, it confirms the existing empirical results in the context of India.
{"title":"Who Bears the Corporate Tax Incidence? Empirical Evidence from India","authors":"Samiksha Agarwal, L. Chakraborty","doi":"10.2139/ssrn.3159706","DOIUrl":"https://doi.org/10.2139/ssrn.3159706","url":null,"abstract":"Against the backdrop of corporate tax policy changes in India, the paper attempts to measure the incidence of corporate income tax in India under a general equilibrium setting. Using seemingly uncorrelated regression coefficients and dynamic panel estimates, we tried to analyze both the relative burden of corporate tax borne by capital and labor and the efficiency effects of corporate income tax. The data for the study is compiled from corporate firms listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) for the period 2000–15. Our empirical estimates suggest that in India capital bears more of the burden of corporate taxes than labor. However, the results vary with different proxies of capital used in the models. Though it is contrary to the Harberger (1962) hypothesis that the burden of corporate tax is shifted to labor rather than capital, it confirms the existing empirical results in the context of India.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114388089","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Kevin S. Markle, Lillian F. Mills, Braden M. Williams
The effects of tax rate changes on corporate profitability are not fully understood. Implicit tax theory predicts a positive relation between country-level tax rates and firm-level pretax returns. Conversely, income shifting should make reported pretax returns inversely related to tax rates. Among single-country European firms, we find robust evidence of corporate implicit taxes following tax rate changes, concentrated in firms that rely less on intangible assets and firms in closed economies (non-EU countries). Among multinational firm affiliates, we find the effects of income shifting outweigh the effects of implicit taxes for firms with high intangibles and in countries with open borders. Our results imply income shifting estimated using only reported profits is less biased by implicit taxes in settings with open economies and firms with unique inputs or products. Our evidence also helps explain prior evidence of decreasing corporate implicit tax effects over time, particularly for multinationals.
{"title":"Implicit Corporate Taxes and Income Shifting","authors":"Kevin S. Markle, Lillian F. Mills, Braden M. Williams","doi":"10.2139/ssrn.2993950","DOIUrl":"https://doi.org/10.2139/ssrn.2993950","url":null,"abstract":"\u0000 The effects of tax rate changes on corporate profitability are not fully understood. Implicit tax theory predicts a positive relation between country-level tax rates and firm-level pretax returns. Conversely, income shifting should make reported pretax returns inversely related to tax rates. Among single-country European firms, we find robust evidence of corporate implicit taxes following tax rate changes, concentrated in firms that rely less on intangible assets and firms in closed economies (non-EU countries). Among multinational firm affiliates, we find the effects of income shifting outweigh the effects of implicit taxes for firms with high intangibles and in countries with open borders. Our results imply income shifting estimated using only reported profits is less biased by implicit taxes in settings with open economies and firms with unique inputs or products. Our evidence also helps explain prior evidence of decreasing corporate implicit tax effects over time, particularly for multinationals.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-03-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122743359","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Tax avoidance by major US multinationals has been extremely topical over the last decade since the GFC. One of the MNEs at the forefront of this controversy is Google. It has been able to snare a dominant share of the international online advertising market without paying any significant amounts of tax in countries where it obtains orders other than the US. It has been able to do so by structuring its affairs so that it does not have a “permanent establishment” (PE) in New Zealand. Instead its New Zealand customers conclude contracts directly with Google subsidiaries in countries which New Zealand has concluded a DTA with but otherwise impose low taxes such as Singapore and Ireland. The BEPS project has been undertaken by the OECD to deal with MNE tax avoidance. New Zealand has been an active participant in this project seeing a multilateral forum such as the OECD as the best way to deal with this problem rather than taking independent steps of its own. The multilateral instrument (MLI) arising out of the BEPS project is designed to modify a large number of the world’s DTAs at one time to deal with this tax avoidance problem such PE avoidance by MNEs such as Google. The MLI is a modular convention in that signatory states do not have to agree to adopt all parts of it. This paper analyses the responses of several of New Zealand’s key DTA partners in respect of Part IV of the MLI dealing with PE avoidance. It will be concluded that the MLI is unlikely to prove effective for New Zealand in deal with tax avoidance by Google. It appears that New Zealand may need to adopt a unilateral strategy to effectively tax Google on its profits earned from New Zealand advertisers outside the BEPS project which is proposed in a bill introduced to the New Zealand Parliament in December 2017. Consideration is finally made whether this bill will be effective in securing tax revenue from MNEs such as Google.
{"title":"Will BEPS Allow New Zealand to Finally Tax Google?","authors":"Andrew M. C. Smith","doi":"10.2139/ssrn.3092781","DOIUrl":"https://doi.org/10.2139/ssrn.3092781","url":null,"abstract":"Tax avoidance by major US multinationals has been extremely topical over the last decade since the GFC. One of the MNEs at the forefront of this controversy is Google. It has been able to snare a dominant share of the international online advertising market without paying any significant amounts of tax in countries where it obtains orders other than the US. It has been able to do so by structuring its affairs so that it does not have a “permanent establishment” (PE) in New Zealand. Instead its New Zealand customers conclude contracts directly with Google subsidiaries in countries which New Zealand has concluded a DTA with but otherwise impose low taxes such as Singapore and Ireland. The BEPS project has been undertaken by the OECD to deal with MNE tax avoidance. New Zealand has been an active participant in this project seeing a multilateral forum such as the OECD as the best way to deal with this problem rather than taking independent steps of its own. The multilateral instrument (MLI) arising out of the BEPS project is designed to modify a large number of the world’s DTAs at one time to deal with this tax avoidance problem such PE avoidance by MNEs such as Google. The MLI is a modular convention in that signatory states do not have to agree to adopt all parts of it. This paper analyses the responses of several of New Zealand’s key DTA partners in respect of Part IV of the MLI dealing with PE avoidance. It will be concluded that the MLI is unlikely to prove effective for New Zealand in deal with tax avoidance by Google. It appears that New Zealand may need to adopt a unilateral strategy to effectively tax Google on its profits earned from New Zealand advertisers outside the BEPS project which is proposed in a bill introduced to the New Zealand Parliament in December 2017. Consideration is finally made whether this bill will be effective in securing tax revenue from MNEs such as Google.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-12-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121728923","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Corporate inversions have gone through periods of intense scrutiny over the last several years with politicians and much of the media calling out these companies for being greedy and unpatriotic, while the CEOs defend their actions as being necessary to stay competitive in a global economy where US corporations face the highest statutory tax rate in the developed world. Despite all this attention, there is very little evidence in the academic literature regarding the factors that influence a company’s decision to invert. In this paper we gather a unique sample of 80 inversion announcements to examine this issue. We find no evidence that the firms that choose to invert have abnormally high effective tax rates, instead we find evidence of “tax aggressive” behavior even before these companies invert. We do find evidence that inversions are more likely in highly competitive industries. We also find evidence for a number of board and CEO characteristics that seem to affect the probability that a firm will invert.
{"title":"Why Do Some Companies Leave? Evidence on the Factors that Drive Inversions","authors":"Douglas O. Cook, Joseph Stover","doi":"10.2139/ssrn.3083715","DOIUrl":"https://doi.org/10.2139/ssrn.3083715","url":null,"abstract":"Corporate inversions have gone through periods of intense scrutiny over the last several years with politicians and much of the media calling out these companies for being greedy and unpatriotic, while the CEOs defend their actions as being necessary to stay competitive in a global economy where US corporations face the highest statutory tax rate in the developed world. Despite all this attention, there is very little evidence in the academic literature regarding the factors that influence a company’s decision to invert. In this paper we gather a unique sample of 80 inversion announcements to examine this issue. We find no evidence that the firms that choose to invert have abnormally high effective tax rates, instead we find evidence of “tax aggressive” behavior even before these companies invert. We do find evidence that inversions are more likely in highly competitive industries. We also find evidence for a number of board and CEO characteristics that seem to affect the probability that a firm will invert.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-12-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117210341","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The international taxation of multinational enterprises (MNEs) stands under public and political pressure. The OECD BEPS project is striving for taxation in line with economic activity and value creation. While this might prevent book profit shifting it comes at the risk of investment shifting and corresponding losses in tax revenue. Academics put forward destination-based taxation to prevent investment shifting. This might come at the cost of taxing MNEs’ profits not in all places of value creation. This conflict can be solved by a mechanism first proposed by Schreiber/Fell. Possible further implementation forms, especially within the OECD framework of transfer pricing and possible instruments to use shall be examined within this paper. The implementation forms shall be compared based on the involvements of information, coordination, differentiation, cooperation and consensus need, while taking into account the remaining flexibility for states involved and tax planning opportunities. While all three possible implementation forms within transfer pricing could be feasible next steps, taking into account preferences of states involved, the mechanism as such can be questioned from a stability point of view. While all states involved despite tax havens could be possible winners when entering the mechanism, sales countries could not be incentivized to uphold it from a pure revenue perspective. As a consequence, states involved should take the long-term trends in taxation into account in order to think about a solution based on coordination.
{"title":"The Sales Country as a Tax Credit Country – Implementation Issues, Complexity Costs and Tax Planning","authors":"Lisa Maria Fell","doi":"10.2139/ssrn.3076774","DOIUrl":"https://doi.org/10.2139/ssrn.3076774","url":null,"abstract":"The international taxation of multinational enterprises (MNEs) stands under public and political pressure. The OECD BEPS project is striving for taxation in line with economic activity and value creation. While this might prevent book profit shifting it comes at the risk of investment shifting and corresponding losses in tax revenue. Academics put forward destination-based taxation to prevent investment shifting. This might come at the cost of taxing MNEs’ profits not in all places of value creation. This conflict can be solved by a mechanism first proposed by Schreiber/Fell. Possible further implementation forms, especially within the OECD framework of transfer pricing and possible instruments to use shall be examined within this paper. The implementation forms shall be compared based on the involvements of information, coordination, differentiation, cooperation and consensus need, while taking into account the remaining flexibility for states involved and tax planning opportunities. While all three possible implementation forms within transfer pricing could be feasible next steps, taking into account preferences of states involved, the mechanism as such can be questioned from a stability point of view. While all states involved despite tax havens could be possible winners when entering the mechanism, sales countries could not be incentivized to uphold it from a pure revenue perspective. As a consequence, states involved should take the long-term trends in taxation into account in order to think about a solution based on coordination.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-11-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122486731","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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