On the dynamics between local and international tax planning in multinational corporations

Christof Beuselinck and Jochen Pierk ()
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Christof Beuselinck: Univ. Lille, CNRS, UMR 9221 - LEM - Lille Economie Management
Jochen Pierk: Erasmus University Rotterdam

Review of Accounting Studies, 2024, vol. 29, issue 1, No 24, 852-888

Abstract: Abstract The international dimension of multinational corporations creates opportunities for pursuing both global as well as local (i.e., unilateral subsidiary country) tax planning strategies. To date, however, researchers have limited insights into both the dynamics and relative importance of one versus another strategy for multinationals. We propose and test a group-level ETR-based measure of profit shifting and validate it by showing it correctly identifies profit shifting reductions when shifting costs increase. We confirm that multinationals can keep group ETRs stable after the introduction of tighter tax compliance and documentation rules and suggest they can do so by relying relatively more on local tax planning. In line with the substitution argument, we document that especially groups identified as ex-ante income shifters as well as those with greater target ETR pressure are responsible for the results.

Keywords: Tax avoidance; Profit shifting; Local tax planning; Multinational corporations; Transfer pricing documentation requirements (search for similar items in EconPapers)
JEL-codes: F23 H26 M41 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11142-022-09731-y

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