Work

The effect of a worldwide tax system on tax management of foreign subsidiaries

Year: 2019

Type: article

Abstract: Under a worldwide tax system, firms pay taxes on their domestic income and repatriated foreign income, whereas under a territorial tax system repatriated foreign income is exempt from taxation. We examine whether worldwide tax systems reduce the incentives of multinational corporations to engage in tax management in their foreign subsidiaries. Using two quasi-natural experiments, we show that multinationals lower the effective tax rates in their foreign subsidiaries after countries switch from a worldwide to a territorial tax system. Thus, multinationals subject to a worldwide tax system face competitive disadvantages compared to competitors from countries with a territorial tax system.

Source: Journal of International Business Studies

DOI: 10.1057/s41267-019-00287-9

Authors: Saskia Kohlhase, Jochen Pierk

Institution: Erasmus University Rotterdam

Language: English

Topic: Corporate Taxation and Avoidance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,600

Funder: Aarhus Universitet