Do Swedish multinationals pay less in taxes than domestic firms?

In recent years, there has been growing concern that multinational enterprises (MNE s) engage in strategic tax planning in order to shift profits to low‐tax jurisdictions. This common perception is generally confirmed by empirical evidence, which is foremost provided for countries with high corporate taxes and relatively complex tax systems. We investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting. We do this using detailed census data from corporate income statements and balance sheets filed by Swedish manufacturing firms between 1997 and 2007. We detect profit shifting by comparing MNE s with (purely) domestic firms. In particular, we identify systematic differences in tax payments, earnings (before interest and taxes) and equity ratios between multinational and comparable domestic firms based on propensity score matching. In addition, we examine the tax behavioural impact of acquiring multinational status using difference‐in‐differences estimations and/or propensity score matching. Our results reveal that the extent to which multinational firms have lower tax payments than their domestic counterparts depends on their production characteristics and foreign market outreach. In particular, we find evidence indicating that firms operating in few foreign markets and firms that become multinational engage in profit shifting from Sweden.     

Multinationals and Income Shifting by Debt

Existing literature studies debt shifting and transfer pricing separately. In practice, however, the choice of debt-to-asset ratios in affiliates and the interest rate on internal debt are interrelated management decisions that are also mutually affected by government regulation. Therefore, this paper models these strategies as simultaneous decisions made by the management. We find that the tax sensitivity of the corporate tax base depends on whether debt shifting and transfer pricing are cost complements or substitutes. A second result is that stricter regulation of debt shifting and transfer pricing may have the effect of fostering such activities.     

Saving taxes through foreign plant ownership

This paper analyzes to which extent foreign plant ownership involves lower tax payments than domestic plant ownership. We assess hypotheses about the tax savings of endogenous foreign subsidiary ownership relative to domestic firms in a data-set of 507,542 foreign- and domestically-owned manufacturing plants in Europe. We identify a significant profit tax saving of endogenous foreign ownership in high-tax host countries. There is evidence of profit shifting which seems more pronounced than debt shifting in Europe: multinationals earn significantly higher profits than comparable domestic units in low-tax countries but significantly lower ones in high-tax countries. Consequently, profit tax payments of foreign-owned firms are lower than those of domestic firms in high-tax countries but higher in low-tax countries.     

Multinational enterprises and corporate tax planning: A review of literature and suggestions for a future research agenda

Corporate tax planning by the multinational enterprise (MNE), that is, the MNE’s ability to plan its tax affairs by using a multitude of strategies to reduce its tax bills legally, is a central research question in the literatures of international business, public economics, tax, finance, law and accounting. Underlying theoretical assumptions, approaches to empirical testing, profit shifting estimation strategies and findings are varied. Thus, it is important to conduct a critical literature review. In this paper, we offer new insights by studying the phenomenon from the international business (IB) perspective. We survey the academic literature on the MNE and corporate tax planning to examine the extent of knowledge on this topic and identify areas that we hope will stimulate interest among IB scholars for further research. We find materials across disciplines that are relevant to IB readers. We examine 120 articles in 51 scholarly journals and classic books published during the period 1966-2017. We identify the key mechanisms and the firm characteristics that may influence corporate tax planning. We suggest a research agenda where IB research can make clear contributions.     

Should countries control international profit shifting?

We present a fiscal competition model with two policy instruments: the level of corporate taxation and the tightness of control of profit shifting by multinational firms (MNF). We show that a country may optimally decide not to monitor the MNF for two reasons. Firstly, this country becomes an attractive location for MNF activity despite a high corporate tax. Secondly, as the profits of the MNF become mobile, the focus of tax competition is shifted. Taxation then influences both an MNF's location and the place where it declares its profits.     

Do taxes influence the organizational boundaries of international firms? An incomplete-contracting model with empirical evidence

Firms that import intermediate goods choose between outsourcing and vertical integration. When corporate tax rates differ between the home country and the foreign country, the possibility of shifting income and reducing overall tax payments through transfer pricing makes integration more attractive than outsourcing. This paper develops an incomplete-contracting model in which an international firm facing tax rate differentials chooses whether or not to internalize intermediate transactions in order to trade off production efficiency and tax minimization. By shifting economic activities across borders, an integrated multinational enterprise establishes a proper transfer price and reaches the optimal profit-splitting arrangement that maximizes its total after-tax profit. This paper finds that cross-country differences in corporate tax rates and product intangibility play important roles in affecting firms’ internalization decision. Empirical analysis employing the US data also supports the theoretical findings. The positive correlation of the integration level of US firms and tax rate differentials between the US and foreign countries remains in the sample excluding tax havens.     

Corporate taxation and the choice of patent location within multinational firms

Corporate patents are important assets in the modern economy, where knowledge is highly valued. In many multinational enterprises (MNEs), they constitute a major portion of the business's value. The intra-firm transfer pricing process for patent-related royalty payments is moreover often highly intransparent and patents thus represent a major source of profit shifting opportunities between multinational entities. For both reasons, MNEs have an incentive to locate their patents at low-tax affiliates to minimize the corporate tax burden. The purpose of our paper is to empirically test for this relationship by exploiting a unique dataset that links information on patent applications to micro panel data for European MNEs. Our results suggest that the corporate tax rate (differential to other group members) exerts a negative effect on the number of patent applications filed by a multinational affiliate. The effect is quantitatively large and robust to controlling for firm size and unobserved heterogeneity between the entities. The findings moreover prevail if we account for royalty withholding taxes and binding ‘Controlled Foreign Company’ rules.     

Who Cares About Corporate Taxation? Asymmetric Tax Effects on Outbound FDI

This paper investigates whether different types of FDI are asymmetrically affected by corporate taxation. We classify investment projects according to several characteristics such as the general motivation for FDI, the type of business activity, or the degree of internationalisation of the multinational firm. Subsequently, we analyse how local taxes influence the number of German outbound investments in European countries. The analysis reveals significant asymmetries with regard to tax effects: vertically integrated investments are more sensitive to host‐country taxation than horizontal FDI; larger tax rate elasticities are estimated if business activities are considered highly mobile; and in accordance with profit‐shifting considerations, subsidiaries of more internationalised companies are less tax responsive to host‐country taxation.     

International Debt Shifting: The Value-Maximizing Mix of Internal and External Debt

Abstract

We study the capital structure of multinationals and expand previous theory by incorporating international debt tax shield effects from both internal and external capital markets. We show that: (i) multinationals’ firm value is maximized if both internal and external debt are used to save tax; (ii) the use of internal and external debt is independent of each other; and (iii) multinationals have a tax advantage over domestic firms, which cannot shift debt across international borders. We test our model using a large panel of German multinationals and find that internal and external debt shifting are of about equal importance.     

The taxation of foreign profits — The old view,the new view and a pragmatic view

The increasing importance of multinational firms raises the question as to whether and how governments should tax repatriated profits, i.e. affiliate profits returned to the headquarters. The answer to this question is especially relevant for profit repatriations within the European Union where multinational firm investment is substantial and tax competition is supposed to be of rising intensity. This paper reviews the criticism of the standard view (the “old view”) of foreign profit taxation, which goes back to Peggy Musgrave. The “new view” of international taxation is based on recent empirical studies and favours a system in which foreign profits are exempt from tax. The debate between old view and new view proponents is critically discussed and, finally, the two are confronted with a “pragmatic view” on foreign profit taxation which crucially incorporates compliance and tax administration costs.     

Profit Shifting in Two‐Sided Markets

We investigate how multinational two‐sided platform firms set their prices on intra‐firm transactions. Two‐sided platform firms derive income from two customer groups that are connected through at least one positive network externality from one group to the other. A main finding is that, even in the absence of taxation, transfer prices deviate from marginal cost of production. A second result of the paper is that it is inherently difficult to establish arm’s length prices in two‐sided markets. Finally, we find that differences in national tax rates may be welfare enhancing, despite the use of (abusive) transfer prices as a profit‐shifting device.     

资本弱化——国际避税的焦点

资本弱化已成为跨国公司国际避税的一种重要手段,也是国际税收领域的重要课题,许多发达国家都针对这种情况制定了相应的反避税措施。我国加入WTO以后,外商来华投资企业日益增多,资本弱化避税问题日加显现,我国应从选用固定比率法、制定适合的债务/股本比率及关联方认定标准等方面加以应对。     

A Proposal for the Efficient Taxation of All Business Income in the EU

There is a growing awareness in many EU member states that business taxation solely on the basis of “taxable profits” enables, in particular, multinational companies to avoid paying taxes, with negative consequences both for tax revenue and—in the longer run—also for the stability of the economy. The following article proposes the taxation of all compensation of capital—not only profit for equity, but also interest for outside capital and licence fees for outside rights—at the site of production.     

Leases and Debt: Complements or Substitutes? Evidence from Belgian SMEs

This study investigates the lease–debt relationship for Belgian small and medium-sized enterprises (SMEs). Traditional finance theory suggests that leases and corporate debt are substitutes: both leases and debt are fixed, contractual obligations that reduce the firm's debt capacity. More use of leases should therefore be associated with less non-lease debt financing. However, some empirical studies find that for large firms, leases and debt are complements. A theoretical explanation for this so-called "leasing puzzle" is based on the tax advantage of leasing over debt. However, in Belgium, tax differences between lessor and lessee do not affect the choice between leases and debt, because the lessee is considered to be the fiscal owner of the assets. He may write off these assets for tax purposes, and the interest part of the lease payments are deductible from his taxable income. Leases and debt can therefore be expected to be substitutes. This hypothesis is tested for a sample of 5,595 firm-year observations for 1,119 Belgian nonfinancial SMEs in the 1995–1999 period. The results indeed provide strong support for the substitution hypothesis: more debt is associated with less leases.     

Strategic Debt in Vertical Relations: Evidence from Franchising

In this paper, we examine the strategic use of debt in franchise organizations. We focus on both the franchisee's and the franchisor's capital structures. The primary goal of this study is to examine whether franchisors impose limits on franchisees’ debt levels to be able to increase their own leverage. We find that the franchisor's leverage is significantly related to the maximum leverage allowed for the franchisee. As the franchisor sets an upper limit on the franchisee's debt ratio, the franchisor can raise more debt and therefore seizes tax benefits, since interest payments are tax deductible. We find that this effect is stronger in chains with larger fractions of franchised outlets.     

Wirkungen der Abgeltungsteuer auf die Kapitalallokation — Anregungen für eine Reform

The flat tax was introduced in Germany in 2009. It is imposed on income from portfolio investment, such as interest and dividends, but also on gains from stock sales. As this paper shows, the tax causes a massive distortion of after-tax returns in favour of debt capital. The financing structure of companies will therefore change in favour of debt capital. The tax discriminates German investors against foreign investors and the profitability of equity decreases strongly. The withholding tax has serious conceptual weaknesses that cause a massive misallocation of capital and thus a lasting damage to growth in Germany. Several recommendations for the necessary amendments are outlined in the article.     

Currency risk and microcredit interest rates

Foreign currency debt provides additional access to capital and offers funds in favorable and flexible terms to microfinance institutions (MFIs). Yet, we find that the use of foreign currency debt, on average, leads to higher microcredit interest rates. We also find that MFIs operating in countries with pegged exchange rate regimes and profit MFIs are better able to mitigate foreign currency risk. The results of the paper suggest that local currency debt is a better option for MFIs if the goal is to provide microcredit at lower interest rates.     

税收筹划在公司管理中的效益性

依法纳税是每个企业应尽的义务,而企业是以获得利润最大化为最终目标,故谋求合法避税便成了企业的最佳选择。企业要实现合法节税增收,提高经济效益,应当根据税务筹划具有全局性、合法性、预见性、选择性、收益性等特征的要求,采取合理缩小税基、选择适用的较低税率;合理归属纳税年度,延缓纳税期限;合法转移税负等措施,从而增强抵御财务风险和经营风险的能力,最终达到税务筹划目的。     

Analyzing leases with the after-tax cost of debt

A generalized expression of the net advantage of leasing (NAL) is used to assess the implications of discounting incremental cash flows at the firm's before-tax cost of debt and the firm's after-tax cost of debt, respectively. If no personal tax biases are assumed, then the before-tax cost of debt should be used to compute NAL. If the before-tax cost of debt is the correct discount rate, then any change in the firm's borrowing level brought about by the decision to lease rather than purchase will alter the computed NAL by the amount of the present value of the tax savings on interest payments. Thus using the before-tax cost of debt is consistent with basic MM valuation theory. Using the after-tax cost of debt, in contrast, implies that any associated change in the firm's borrowing level is irrelevant for purposes of computing NAL. Sufficient conditions are specified for the after-tax cost of the debt to be the correct discount rate for lease versus purchase analysis. Finally, lease analysis in a MM world is compared to lease analysis in a Miller tax world. For the special case of a 100% leverage ratio, the specification of NAL is the same in both worlds. Use of the after-tax cost of debt is correct in a Miller world and is a good approximation in an MM world provided the cash flows are predominantly debt financed.     

论增值税税务筹划

增值税既能有效地保证政府财政收入,又具有税收中性的特征,越来越为世界各国普遍采用.虽然增值税是价外税,但由于税负转嫁的不完全性等因素,出于企业合法利益最大化的目的,其税务筹划具有必要性和可行性.纳税人身份的选择空间、增值税税收优惠政策和销售方式的选择规定等,给纳税人进行增值税税务筹划提供了客观条件和空间.纳税人可以根据法律的有关规定,通过对投资、经营、理财活动的事先筹划和安排,满足税收优惠政策的适用条件,尽可能取得节税的税收收益.