Aggressive Tax Avoiders: U.S. Multinationals Shifting Domestic Earnings to Zero

The Accounting Review, Forthcoming

50 Pages Posted: 2 Dec 2020

See all articles by Novia (Xi) Chen

Novia (Xi) Chen

University of Houston - Department of Accountancy & Taxation

Tiana Lehmer

affiliation not provided to SSRN

Date Written: September 26, 2020

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 that Small captures 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.

Keywords: Income shifting; tax incentives; pretax earnings; U.S. multinationals; domestic earnings

JEL Classification: F23, H25, H26, M40

Suggested Citation

Chen, Novia (Xi) and Lehmer, Tiana, Aggressive Tax Avoiders: U.S. Multinationals Shifting Domestic Earnings to Zero (September 26, 2020). The Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3712644

Novia (Xi) Chen (Contact Author)

University of Houston - Department of Accountancy & Taxation ( email )

Bauer College of Business
4800 Calhoun Road
Houston, TX 77204
United States

Tiana Lehmer

affiliation not provided to SSRN

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