Does Parenting Matter? U.S. Parents, Non-U.S. Parents, and Global Firm Taxes

U of Texas Law, Public Law Research Paper No. 664

50 Pages Posted: 20 Dec 2016 Last revised: 23 May 2018

See all articles by Eric J. Allen

Eric J. Allen

University of Southern California - Leventhal School of Accounting

Susan C. Morse

University of Texas at Austin - School of Law

Date Written: December 29, 2017

Abstract

In this paper we examine whether, under pre-2018 tax law, a global firm reported a lower income tax expense simply because its publicly traded parent was incorporated outside the United States. Our study considers loss years as well as profit years and isolates the effect of the incorporation location of the parent by considering only U.S. and Non-U.S. multi-national companies (MNCs) with a significant U.S. presence. We find that, in profit years, U.S. firms show an effective tax rate that is greater by 5 percentage points compared to non-U.S. firms. Conversely, in loss years, which make up 30 percent of our sample, U.S. firms have better tax results, which can be expressed as an effective tax rate advantage of 5 percentage points. Our study demonstrates that the relative tax cost of organizing as a U.S. firm is smaller than some have suggested, and reinforces the importance of considering loss year results when evaluating tax policies. The reduction in the U.S. corporate income tax rate under the 2017 tax act will provide smaller benefits to U.S.-parented corporations when loss years are also considered.

Keywords: Accounting for Income Taxes, Multinational Taxation, U.S. and Non-U.S. Firms, Effective Tax Rates

JEL Classification: M41, H25, K34

Suggested Citation

Allen, Eric J. and Morse, Susan C., Does Parenting Matter? U.S. Parents, Non-U.S. Parents, and Global Firm Taxes (December 29, 2017). U of Texas Law, Public Law Research Paper No. 664. Available at SSRN: https://ssrn.com/abstract=2887658 or http://dx.doi.org/10.2139/ssrn.2887658

Eric J. Allen (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

Susan C. Morse

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

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