Taxing multinationals beyond borders: Financial and locational responses to CFC rules

Sarah Clifford

Journal of Public Economics, 2019, vol. 173, issue C, 44-71

Abstract: Using a large panel dataset on worldwide operations of multinational firms, this paper studies one of the most advocated anti-tax-avoidance measures: Controlled Foreign Corporation rules. By including income of foreign low-tax subsidiaries in the domestic tax base, these rules create incentives to move income away from low-tax environments. Exploiting variation around the tax threshold used to identify low-tax subsidiaries, we find that multinationals redirect profits into subsidiaries just above the threshold and change incorporation patterns to place fewer subsidiaries below and more above the threshold. Roughly half of the resulting increase in global tax revenue accrues to the rule-enforcing country.

Keywords: CFC legislation; Multinational firms; Tax avoidance; Corporate taxation (search for similar items in EconPapers)
JEL-codes: F23 H25 K34 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:173:y:2019:i:c:p:44-71

DOI: 10.1016/j.jpubeco.2019.01.010

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