Using Financial Accounting Data to Examine the Effect of Foreign Operations Located in Tax Havens and Other Countries on US Multinational Firms' Tax Rates

51 Pages Posted: 20 Jan 2009 Last revised: 20 Apr 2009

See all articles by Scott Dyreng

Scott Dyreng

Duke University - Accounting

Bradley P. Lindsey

Utah State University - Huntsman School of Business

Date Written: March 25, 2009

Abstract

This paper investigates the effect tax havens and other foreign jurisdictions have on the income tax rates of multinational firms based in the United States. We develop a new regression methodology using financial accounting data to estimate the average worldwide, federal, and foreign tax rates on worldwide, federal, and foreign pre-tax income for a large sample of US firms with and without tax haven operations. We find that on average US firms that disclosed material operations in at least one tax haven country have a worldwide tax burden on worldwide income that is approximately 1.5 percentage points lower than firms without operations in at least one tax haven country. Our results also show that US firms face a 4.4 percent current federal tax rate on foreign income whether or not they have tax haven operations. Finally, we find that US firms with operations in some tax haven countries have higher federal tax rates on foreign income than other firms. This result suggests that in some cases, tax haven operations may increase US tax collections at the expense of foreign country tax collections.

Keywords: Accounting for Income Taxes, Tax Haven, Effective Tax Rates

JEL Classification: M41, E62, H25

Suggested Citation

Dyreng, Scott and Lindsey, Bradley P., Using Financial Accounting Data to Examine the Effect of Foreign Operations Located in Tax Havens and Other Countries on US Multinational Firms' Tax Rates (March 25, 2009). Available at SSRN: https://ssrn.com/abstract=1326602 or http://dx.doi.org/10.2139/ssrn.1326602

Scott Dyreng (Contact Author)

Duke University - Accounting ( email )

Box 90120, Fuqua School of Business
Durham, NC 27708-0120
United States

Bradley P. Lindsey

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322-3500
United States
(435) 797-4126 (Phone)

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