A Comparison of the Tax-Motivated Income Shifting of Multinationals in Territorial and Worldwide Countries

Abstract:     
This paper tests for differences in the tax-motivated income shifting behaviors of multinationals subject to different systems of taxing foreign earnings. I find that multinationals subject to territorial tax regimes shift more income than those subject to worldwide tax regimes, but that the difference in shifting is not statistically different when the worldwide firms can defer repatriation of the shifted income. In additional tests, I find that all firms have cash trapped in foreign countries by withholding taxes on dividends and that worldwide firms (specifically those domiciled in the U.S.) have cash trapped by the residual home country tax due on repatriation of foreign dividends.

Number of Pages in PDF File: 47

working papers series