Tax Shelters, Tax Havens and Permanently Reinvested Earnings

32 Pages Posted: 26 Apr 2011

Date Written: April 25, 2011

Abstract

We examine the relationship between corporate subsidiaries located in tax haven countries, the parent firms’ tax sheltering activity, and permanently reinvested earnings. We measure tax shelter intensity with tax reserves established under ACS 740-10 for uncertain tax positions that are unlikely to be upheld upon audit. In the sample of 768 Fortune 1000 firms, each firm has, on average, 84 subsidiaries in 19 locations, with 8 subsidiaries in tax haven countries. Firms with larger amounts of permanently reinvested earnings show greater tax shelter intensity; for every $1 billion in permanently reinvested earnings, firms increase tax reserves for uncertain positions by $20.6 million. After controlling for the level of permanently reinvested earnings, we find that firms’ tax shelter intensity increases with the number of tax haven jurisdictions in which they establish subsidiaries. In additional analysis controlling for industry, foreign operations and tax burden, we find tax shelter intensity increases for firms having subsidiaries located in four tax havens: British Virgin Islands, Hong Kong, Malta and Singapore.

Keywords: tax havens, tax shelters, fin48, tax reserves, ASC 740-10-25, corporate tax, multinational taxation

JEL Classification: H25, H26

Suggested Citation

Alexander, Raquel Meyer and Whiteaker-Poe, Janie, Tax Shelters, Tax Havens and Permanently Reinvested Earnings (April 25, 2011). Available at SSRN: https://ssrn.com/abstract=1822492 or http://dx.doi.org/10.2139/ssrn.1822492

Raquel Meyer Alexander (Contact Author)

Freeman College of Management ( email )

701 Moore Ave.
Lewisburg, PA 17837
United States

Janie Whiteaker-Poe

Baylor University ( email )

Waco, TX 76798
United States

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