Exploring the Role Delaware Plays as a Tax Haven

Scott D. Dyreng (), Bradley P. Lindsey () and Jacob R. Thornock ()
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Scott D. Dyreng: Duke University
Bradley P. Lindsey: North Carolina State University
Jacob R. Thornock: University of Washington

No 1212, Working Papers from Oxford University Centre for Business Taxation

Abstract: We examine whether Delaware serves as a domestic tax haven. We find that taxes play an important role in determining whether U.S. firms locate subsidiaries in Delaware and that these tax factors are economically important when compared to the legal and governance factors considered in prior research. In addition, we find that U.S. firms most likely to implement a Delaware–based state tax avoidance strategy have state effective tax rates that range between 0.7 and 1.1 percentage points lower than other firms on average. The tax savings represent a 15 – 24% decrease in the state tax burden, and translate to an increase in net income of between 1.04% and 1.47%. We also find that the tax benefits of using Delaware tax strategies are diminishing over time and we provide evidence this decline is partially attributable to efforts by states to limit the multi-state tax avoidance of U.S. firms.

Keywords: Delaware; Tax Haven; Corporate Governance; Corporate Tax Avoidance. (search for similar items in EconPapers)
JEL-codes: G38 H25 H71 K22 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-pbe
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