Aggressive Tax Avoiders: U.S. Multinationals Shifting Domestic Earnings to Zero
The Accounting Review · 2021 · Volume 96 · Issue 5
Abstract
We investigate whether U.S. multinational corporations shift income overseas to the point of recording domestic pretax earnings around zero. We label firms with near-zero domestic earnings “Small” firms, and present evidence thatSmallcaptures targeted income shifting that minimizes worldwide and domestic current taxes. Because shifting essentially all income out of the U.S. represents a very aggressive form of international tax planning, Small firms represent an important margin for understanding the income shifting of U.S. MNCs. We find that firms facing tax incentives to shift income and firms with greater income shifting ability are more likely to report near-zero domestic earnings. In addition, investors value the earnings of Small firms higher than that of other U.S. multinational firms, conditional on overall profitability, suggesting that, on average, investors hold a positive view of income shifting to the point of recording domestic earnings around zero. Data Availability:Data are available from the public sources cited in the text. JEL Classifications:F23; H25; H26; M40.
Keywords
income shifting, tax incentives, pretax earnings, U.S. multinationals, domestic earnings
Enable JavaScript for citation tools and additional paper interactions.