Do Worldwide Tax Incentives Affect the Income Reporting and Capital Structure of Foreign-Controlled U.S. Corporations?

33 Pages Posted: 1 Apr 2002

See all articles by Lillian F. Mills

Lillian F. Mills

University of Texas at Austin - McCombs School of Business

Kaye J. Newberry

University of Arizona - Department of Accounting

Date Written: January 2002

Abstract

As companies become more global, there is continuing interest regarding the influence of tax incentives on firms' U.S. versus foreign income reporting. Using confidential U.S income tax return data and international financial data, we examine how the income reporting of foreign-controlled U.S. corporations relates to the incentives of their foreign parent corporations. We find that worldwide tax incentives influence their U.S. income reporting, with the firms in our sample shifting income into the U.S. on average during 1987-1996. While this finding is contrary to popular political claims, it is consistent with prior evidence of U.S. multinationals shifting income into the U.S. over a similar period. Further, we find evidence that foreign multinationals use multiple income-shifting methods, including their use of debt in the capital structure of foreign-controlled U.S. corporations.

Keywords: income shifting, capital structure, foreign-controlled U.S. corporations

JEL Classification: G32, H25, M41, M43

Suggested Citation

Mills, Lillian F. and Newberry, Kaye J., Do Worldwide Tax Incentives Affect the Income Reporting and Capital Structure of Foreign-Controlled U.S. Corporations? (January 2002). Available at SSRN: https://ssrn.com/abstract=304182 or http://dx.doi.org/10.2139/ssrn.304182

Lillian F. Mills

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

Austin, TX 78712
United States

Kaye J. Newberry (Contact Author)

University of Arizona - Department of Accounting ( email )

Tucson, AZ 85721
United States
520-621-1252 (Phone)
520-621-3742 (Fax)

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