Impact of foreign operations on reported effective tax rates: interplay of foreign taxes, U.S. taxes and U.S. GAAP |
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| Authors: | Christine Bauman Michael Schadewald |
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| Institution: | 1. School of International Trade and Economics, University of International Business and Economics;2. Institute of China''s Reform and Development, Renmin University of China;1. Credit Suisse, Switzerland;2. University of Nottingham, United Kingdom;3. Northwestern University, United States;1. Lingnan University, Hong Kong;2. Hong Kong Baptist University, Hong Kong;1. School of Economics and Management, Henan Agricultural University, China;2. School of Accounting, Zhongnan University of Economics and Law, China |
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| Abstract: | Effective tax rates can have a significant effect on a firm’s cash flows and reported earnings. As the operations of U.S. companies become increasingly global in scope, an important issue is how their foreign operations impact their effective tax rates, and, in turn, their reported earnings. This study describes how foreign taxes, U.S. taxes, and U.S. accounting principles interact to determine the impact of foreign operations on a firm’s effective tax rate. This analysis will assist users of financial statements in assessing the quality of earnings, making interfirm comparisons, evaluating the performance of management, judging the risks of additional tax assessments, and predicting future effective tax rates. |
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