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

Sarah Clifford
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Sarah Clifford: Department of Economics, University of Copenhagen

EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

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 for multinationals 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 place more new subsidiaries just above compared to just below the threshold. The resulting increase in global corporate tax revenue partly 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)
New Economics Papers: this item is included in nep-int, nep-law and nep-pbe
Date: 2017-02
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Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:17-02

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