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Using IRS Data to Identify Income Shifting to Foreign Affiliates

54 Pages Posted: 9 Aug 2014 Last revised: 24 Aug 2017

Lisa De Simone

Stanford Graduate School of Business

Lillian F. Mills

University of Texas at Austin - McCombs School of Business

Bridget Stomberg

Indiana University

Date Written: August 23, 2017

Abstract

We use confidential Internal Revenue Service (IRS) data on the magnitude of U.S.-foreign intercompany transactions to develop a financial statement-based measure of the likelihood that U.S. multinational entities (MNEs) make net intercompany payments out of the U.S. Descriptive analysis shows that although sample firms report net inbound intercompany payments on average, high tech firms and small firms report average net outbound payments. The determinants of net outbound payments vary with size, but the likelihood that a firm reports net outbound payments is positively related to high tech operations and income tax incentives across all firms. Supplemental analyses show that firms with net outbound payments have historically not been more likely to be audited or assessed additional taxes upon IRS audit. Our study provides a validated measure based on publicly available data that researchers, investors, and policymakers can use to infer a substantial form of income shifting.

Keywords: IRS audit, tax avoidance, international tax, income shifting

Suggested Citation

De Simone, Lisa and Mills, Lillian F. and Stomberg, Bridget, Using IRS Data to Identify Income Shifting to Foreign Affiliates (August 23, 2017). Stanford University Graduate School of Business Research Paper No. 14-29; Rock Center for Corporate Governance at Stanford University Working Paper No. 192. Available at SSRN: https://ssrn.com/abstract=2477537

Lisa De Simone

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-3874 (Phone)
650-724-3083 (Fax)

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/lisa-de-simone

Lillian Mills (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

Bridget Stomberg

Indiana University ( email )

107 S Indiana Ave
100 South Woodlawn
Bloomington, IN 47405
United States

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