Are U.S. Multinational Corporations Becoming More Aggressive Income Shifters?

Journal of Accounting Research, Vol. 50, No. 5, pp.1245-1286, 2012

57 Pages Posted: 21 Apr 2011 Last revised: 1 Mar 2013

See all articles by Kenneth J. Klassen

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Stacie Kelley Laplante

University of Wisconsin - Madison

Date Written: June 15, 2012

Abstract

This paper examines income shifting of U.S. multinational companies over the past two decades. Domestic and foreign policymakers are increasingly concerned with the effect of income shifting on dwindling tax revenues, however, extant research on income shifting by U.S. multinational enterprises is mixed. We address the disconnect between the academic literature and the policymaker’s perceptions by examining the extent of multijurisdictional income shifting by U.S. multinational companies. We directly address conflicting results in extant literature and show that using either multi-period proxies or instrumental variables overcome weaknesses of annual proxies in this setting. Our tests show that U.S. companies have become more active at shifting income out of the U.S. as the regulatory costs of shifting have changed. Holding tax rate differences between U.S. and foreign jurisdictions constant, our empirical estimates suggest that our sample of 380 corporations with low average foreign tax rates collectively shift approximately $10 billion of additional income out of the U.S. annually during 2005-2009 relative to 1998-2002 due to varying regulatory costs of shifting.

Keywords: Income shifting, tax planning

JEL Classification: G38, H25, H32, M41

Suggested Citation

Klassen, Kenneth and Laplante, Stacie Kelley, Are U.S. Multinational Corporations Becoming More Aggressive Income Shifters? (June 15, 2012). Journal of Accounting Research, Vol. 50, No. 5, pp.1245-1286, 2012. Available at SSRN: https://ssrn.com/abstract=1815320 or http://dx.doi.org/10.2139/ssrn.1815320

Kenneth Klassen

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)

Stacie Kelley Laplante (Contact Author)

University of Wisconsin - Madison ( email )

975 University Avenue
Madison, WI 53706
United States
608-265-3494 (Phone)
608-265-3494 (Fax)

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