Territoriality, Worldwide Principle, and Competitiveness of Multinationals: A Firm-Level Analysis of Tax Burdens

Using consolidated firm-level accounting data for about 3,400 companies in 15 OECD countries from ORBIS (2003{2007), this paper compares the tax burden of companies headquartered in worldwide countries with that of companies headquartered in territorial countries. The tax burden is measured by a marginal effective tax rate (METR) and, employing a new methodology, by a marginal effective tax base (METB) which controls for statutory corporate tax rates. A higher METR for entities headquartered in worldwide jurisdictions is explained by higher corporate statutory tax rates rather than by the difference in the taxation of foreign profits. The METB of companies headquartered in worldwide countries is not statistically different from that of companies headquartered in territorial countries. Using corporate presence in tax havens, the paper also investigates the vulnerability of territorial jurisdictions to tax avoidance. The results show that offshore low-tax operations reduce the METR and the METB of multinationals more in territorial systems than in worldwide systems

Tax Haven Activities and the Tax Liabilities of Multinational Groups

This paper investigates the effect of tax haven operations on the tax liabilities of corporate groups headquartered in 15 OECD countries. Using consolidated accounting data from ORBIS (2003{2007), this work finds that, at the mean, an additional tax haven subsidiary reduces tax liabilities over total assets by 7.4 per cent in the long run. At the mean, the marginal effective tax rate (ETR) of a corporate group with tax haven subsidiaries is one percentage point lower than it is for groups without low-tax offshore operations. The results also show that the marginal ETR of companies headquartered in countries with a territorial system is lower than that of companies head- quartered in jurisdictions with a worldwide system of taxation on corporate profits. More specifically, corporate groups headquartered in the United States have the highest marginal ETR

The corporate income tax in the open economy: incidence and profit shifting

This thesis investigates empirically the effects of the corporate income tax in an open economy. The analysis is carried out using linear panel-data regression methods. The first chapter studies the incidence of the corporate income tax. It introduces a model with location-specific rents which distinguishes between a direct effect and an indirect effect of the corporate income tax on labour. The former occurs when an increase in the corporate tax reduces the rent over which the employees and the company bargain. This reduces the bargained wage. The latter effect is the result highlighted in previous literature wherein an increase in the corporate tax reduces the stock of capital and consequently wages. Chapter 1 estimates the direct effect using accounting data from over 55,000 companies located in nine OECD countries (1996{2003) and finds that the tax is largely shifted to the labour force. Chapter 2 shows that measured productivity of multinational firms is overestimated in low-tax countries (and vice versa), because multinationals manipulate the value of sales upwards and the costs of intermediate inputs downwards. The analysis is carried out using accounts from about 16,000 firms located in 10 OECD countries (1998{2004). The results show that a 10 percentage points cut in the statutory corporate tax rate induces multinationals to increase their measured total factor productivity by about 10 per cent. Chapter 3 investigates the effect of tax haven operations in a corporate group. Using accounting data for about 3,400 corporate groups in 15 OECD countries (2003{2007), the study finds that tax haven operations reduce the tax liabilities of multinational companies by 7.4 per cent in the long run (at the mean). Also, the ETR of a corporate group with tax haven subsidiaries is one percentage point lower than the ETR of entities without such operations. Chapter 3 also finds that the marginal ETR of companies headquartered in a jurisdiction with a territorial system is lower than the marginal ETR of companies headquartered in jurisdictions adopting a worldwide taxation system

Transfer-pricing and Measured Productivity of Multinational Firms

This paper examines the differences in total factor productivity (TFP) between multinationals and domestic firms before and after tax rate changes to investigate whether the host country corporate tax rate has a significant influence on the measured TFP advantage of multinational companies. Using a sample of approximately 16,000 European firms (1998-2004), we find that a 10 percentage points cut in the statutory corporate tax rate would increase multinationals' measured TFP by about 10 per cent relative to domestic firms, consistent with profit-shifting by multinationals. At the sample mean, this would imply a 44 per cent increase in the TFP advantage of multinationals

Profit-shifting and measured Productivity of Multinational Firms

This paper examines the differences in total factor productivity (TFP) between multinationals and domestic firms before and after tax rate changes to investigate whether the host country corporate tax rate has a significant influence on the measured TFP advantage of multinational companies. Using a sample of approximately 16,000 European firms (1998-2004), we find that a 10 percentage points cut in the statutory corporate tax rate would increase multinationals' measured TFP by about 10 per cent relative to domestic firms, consistent with profit-shifting by multinationals. At the sample mean, this would imply a 44 per cent increase in the TFP advantage of multinationals

The corporate income tax in the open economy : incidence and profit shifting

This thesis investigates empirically the effects of the corporate income tax in an open economy. The analysis is carried out using linear panel-data regression methods. The first chapter studies the incidence of the corporate income tax. It introduces a model with location-specific rents which distinguishes between a direct effect and an indirect effect of the corporate income tax on labour. The former occurs when an increase in the corporate tax reduces the rent over which the employees and the company bargain. This reduces the bargained wage. The latter effect is the result highlighted in previous literature wherein an increase in the corporate tax reduces the stock of capital and consequently wages. Chapter 1 estimates the direct effect using accounting data from over 55,000 companies located in nine OECD countries (1996{2003) and finds that the tax is largely shifted to the labour force. Chapter 2 shows that measured productivity of multinational firms is overestimated in low-tax countries (and vice versa), because multinationals manipulate the value of sales upwards and the costs of intermediate inputs downwards. The analysis is carried out using accounts from about 16,000 firms located in 10 OECD countries (1998{2004). The results show that a 10 percentage points cut in the statutory corporate tax rate induces multinationals to increase their measured total factor productivity by about 10 per cent. Chapter 3 investigates the effect of tax haven operations in a corporate group. Using accounting data for about 3,400 corporate groups in 15 OECD countries (2003{2007), the study finds that tax haven operations reduce the tax liabilities of multinational companies by 7.4 per cent in the long run (at the mean). Also, the ETR of a corporate group with tax haven subsidiaries is one percentage point lower than the ETR of entities without such operations. Chapter 3 also finds that the marginal ETR of companies headquartered in a jurisdiction with a territorial system is lower than the marginal ETR of companies headquartered in jurisdictions adopting a worldwide taxation system.EThOS - Electronic Theses Online ServiceGBUnited Kingdo

Corporate tax incentives & capital structure: new evidence from UK firm-level tax returns

We investigate how companies' capital structure is affected by corporate income taxes using confidential company-level tax returns for a large sample of UK firms. Exploiting variation in companies' marginal tax rates, we find a positive and substantial long-run tax effect on leverage. Leverage responds more to decreases in the marginal tax rate, and it responds to changes in the marginal rather than the average tax rate. Most importantly, we find that the marginal tax rate based on tax returns has greater explanatory power for companies' leverage than the marginal tax rate based on financial statements. Our study suggests that errors in the measurement for tax incentives using financial statements could lead to underestimation of the tax effects on capital structure