The effect of a worldwide tax system on tax management of foreign subsidiaries

Saskia Kohlhase () and Jochen Pierk ()
Additional contact information
Saskia Kohlhase: Erasmus University Rotterdam
Jochen Pierk: Erasmus University Rotterdam

Journal of International Business Studies, 2020, vol. 51, issue 8, No 5, 1312-1330

Abstract: Abstract Under a worldwide tax system, firms pay taxes on their domestic income and repatriated foreign income, whereas under a territorial tax system repatriated foreign income is exempt from taxation. We examine whether worldwide tax systems reduce the incentives of multinational corporations to engage in tax management in their foreign subsidiaries. Using two quasi-natural experiments, we show that multinationals lower the effective tax rates in their foreign subsidiaries after countries switch from a worldwide to a territorial tax system. Thus, multinationals subject to a worldwide tax system face competitive disadvantages compared to competitors from countries with a territorial tax system.

Keywords: cross-border investments; foreign subsidiaries; dividend repatriation; tax avoidance; territorial tax system; worldwide tax system (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://link.springer.com/10.1057/s41267-019-00287-9 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:jintbs:v:51:y:2020:i:8:d:10.1057_s41267-019-00287-9

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/41267/PS2

DOI: 10.1057/s41267-019-00287-9

Access Statistics for this article

Journal of International Business Studies is currently edited by John Cantwell

More articles in Journal of International Business Studies from Palgrave Macmillan, Academy of International Business
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().