Conference Agenda

Overview and details of the sessions of this online conference.

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Session Overview
B06: Issues in International Taxation
Wednesday, 18/Aug/2021:
12:30pm - 2:00pm

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12:30pm - 12:52pm

Investing in Tax Avoidance

Katarzyna Bilicka1, Michael P. Devereux2, Irem Guceri3

1Utah State University; 2Oxford University, United Kingdom; 3Oxford University, United Kingdom

This paper studies the optimisation frictions that affect the cost of profi t shifting for multinational companies. Using con dential UK corporate tax returns data for the years 2000 to 2015, we analyse the effects of foreign tax rate cuts on the extensive and intensive margins of profi t reporting in the UK. We show that profi ts of multinational fi rms operating in the UK do not react to tax rate changes in their home countries at the intensive margin. Instead, our reduced form evidence shows large extensive margin responses, providing evidence for the presence of fi xed costs related to pro t shifting. We build a model which accounts for those fixed costs and we estimate the extent of shifting frictions alongside the intensive and extensive margin elasticities of taxable profi t.

Bilicka-Investing in Tax Avoidance-184.pdf

12:52pm - 1:15pm

Tax-Induced Transfer Pricing and Corporate Agency Costs

Michael Stimmelmayr1, Marko Koethenbuerger2

1University of Bath, United Kingdom; 2D-MTEC, ETH Zuerich

Corporate agency conflicts are widespread, but their relations to taxation are rarely explored. The paper analyzes the implications of tax-induced transfer pricing when corporate agency problems between the headquarter and division managers of a multinational enterprise (MNE) exist. Possibly surprisingly, tax and incentive considerations might not be conflicting in the choice of transfer prices. Compared to divisional bargaining, a centralized choice of transfer prices, where tax savings considerations are dominant, might not dilute, but strengthen incentives of managers to provide essential inputs to local production. The tax-related incentive effects spill over to government incentives to compete for MNE profits. We relate the analysis to the current OECD initiatives on transfer pricing regulation and identify welfare effects of regulatory measures hitherto unnoticed.

Stimmelmayr-Tax-Induced Transfer Pricing and Corporate Agency Costs-460.pdf

1:15pm - 1:37pm

Organizational Capacity and Profit Shifting

Katarzyna Anna Bilicka1, Daniela Scur2

1Utah State University, United States of America; 2Cornell University, United States of America

This paper analyses the effect of firm’s organizational capacity on reported profitability of multinational enterprises (MNEs). Better organizational practices improve productivity and, in principle, increase potential taxable profits of firms. However, higher adoption of these practices may also enable more efficient re-allocation of profits across tax jurisdictions. We find that subsidiaries of MNEs located in high tax countries report significantly lower profits and have higher incidence of bunching around zero returns on assets, if they have better organizational practices. This is especially true for more tax-aggressive MNEs. Using an event study design, we find that firms with better practices are more responsive to corporate tax rate changes. These responses are also driven by more tax aggressive MNEs. These patterns are consistent with organizational capacity partially driving profit shifting behavior.

Bilicka-Organizational Capacity and Profit Shifting-124.pdf

1:37pm - 2:00pm

Investment and Global Intangible Low-Taxed Income

Jennifer Blouin, Nathan Born

University of Pennsylvania, United States of America

The Tax Cuts and Jobs Act of 2017 introduced Global Intangible Low-Taxed Income (GILTI), which is a minimum tax on the foreign earnings of US-based companies. In this paper, we model investment incentives for multinational firms and, in particular, how GILTI alters foreign activity in low-tax and high-tax jurisdictions. We find that GILTI creates differing tax regimes depending on the foreign tax rate. In high-tax countries, US firms face a territorial regime. However, in low-tax countries, US firms face a regime that resembles a world-wide tax system. In our model, GILTI incentivizes tangible capital investment in low-tax countries, thereby altering the capital intensity of those subsidiaries. The new US system also eliminates the incentive for firms to hold foreign passive investment. We test these inferences empirically, finding mixed evidence in support of our theoretical predictions.

Blouin-Investment and Global Intangible Low-Taxed Income-547.pdf

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