Loss expectation and income shifting

Ye Ji Lee and Ji Seon Yoo

Journal of Contemporary Accounting and Economics, 2023, vol. 19, issue 2

Abstract: This study examines the effects of expected losses on the income-shifting strategies of multinational corporations (MNCs). Using a set of worldwide MNC affiliates, this study first finds empirical evidence for ex ante adjustments of income-shifting strategies according to reverse incentives for potential losses. The results also support the existence of limited flexibility introduced by Hopland et al. (2018, 2021). Second, the estimates of income shifting measured using expected tax rate differences reveal that the traditional methodology of using statutory tax rate differences is subject to an estimation bias. This estimation bias varies depending on the loss expectation status and tax-rate levels of the affiliates.

Keywords: Ex ante adjustments; Expected tax rates; Flexibility; Income shifting; Multinational corporations; Reverse incentives (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:19:y:2023:i:2:s1815566923000024

DOI: 10.1016/j.jcae.2023.100352

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