Do U.S. Firms Avoid More Taxes Than Their European Peers? On Firm Characteristics and Tax Legislation as Determinants of Tax Differentials

Michael Overesch, Sabine Strueder and Georg Wamser

National Tax Journal, 2020, vol. 73, issue 2, 361-400

Abstract: Using pairs of similar U.S. and European firms listed on the S&P 500 or Stoxx Europe 600, we examine effective tax differentials between U.S. multinational corporations (MNCs) and their European peers. We particularly focus on the influence of tax policy on tax differentials between MNCs from the United States and Europe. Our findings suggest that U.S. MNCs had been avoiding more taxes compared to their European peers before the 2017 U.S. tax reform. Furthermore, results show that U.S. MNCs compensated for about half of the significantly larger statutory tax burden before the U.S. tax reform by avoiding more taxes than their European peers. Based on past reforms, we confirm that international tax legislation affects effective tax expenses. Our results reveal that more lenient controlled foreign company (CFC) rules are associated with lower effective tax rates. Moreover, our results suggest that the switch to a territorial system reduces deferred taxes, while we find no evidence that current and foreign tax expenses are affected.

Date: 2020
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