Using IRS data to identify income shifting to foreign affiliates

Lisa De Simone (), Lillian F. Mills () and Bridget Stomberg ()
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Lisa De Simone: Stanford Graduate School of Business
Lillian F. Mills: The University of Texas at Austin
Bridget Stomberg: Indiana University

Review of Accounting Studies, 2019, vol. 24, issue 2, No 10, 694-730

Abstract: Abstract Income shifting is a significant source of tax planning for U.S. corporations. We use confidential Internal Revenue Service (IRS) data to develop a firm-year measure of income shifting. Our measure captures the relative extent of U.S. multinational entity (MNE) net intercompany payments out of the United States to CFCs. Our data show that the majority of sample firms report net inbound intercompany payments on average. Sample firms report nearly $830 billion of outbound payments and over $1 trillion of inbound payments in total. Companies reporting net outbound payments are smaller and operate in high-tech industries. Supplemental analyses show that firms with outbound intercompany payments have a lower rate of IRS audit and are no more likely to be assessed additional taxes upon audit. Our study provides a measure based on publicly available data that researchers, investors, and policymakers can use to infer outbound income shifting.

Keywords: IRS audit; Tax avoidance; International tax; Income shifting (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (18)

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DOI: 10.1007/s11142-019-9484-4

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