R&D and the Rising Foreign Profitability of U.S. Multinational Corporations

62 Pages Posted: 10 Oct 2017

See all articles by Lisa De Simone

Lisa De Simone

Stanford Graduate School of Business

Jing Huang

Virginia Polytechnic Institute & State University - Pamplin College of Business

Linda K. Krull

University of Oregon

Date Written: October 6, 2017

Abstract

We investigate how R&D contributes to rising foreign profitability in U.S. multinational corporations (MNCs) through wage savings and tax incentives. Our results suggest that although wage savings increase foreign profit margins attributable to foreign R&D activities, the shifting of income attributable to domestic R&D activities to lower-tax jurisdictions has a larger effect on foreign profit margins. However, additional tests suggest that wage savings are more important than tax incentives in explaining foreign profit margins when the wage discount substantially exceeds the tax differential. Our evidence sheds light on the importance of R&D locations in corporate intangible income shifting that separates the location of economic activity from the location of reported taxable income.

Keywords: Multinational Tax, Income Shifting, R&D, Intangibles, Base Erosion

JEL Classification: H25, H26

Suggested Citation

De Simone, Lisa and Huang, Jingjing and Krull, Linda K., R&D and the Rising Foreign Profitability of U.S. Multinational Corporations (October 6, 2017). Available at SSRN: https://ssrn.com/abstract=3050016 or http://dx.doi.org/10.2139/ssrn.3050016

Lisa De Simone (Contact Author)

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

Jingjing Huang

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

Blacksburg, VA 24061
United States

Linda K. Krull

University of Oregon ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States
541-346-3252 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
125
Abstract Views
987
rank
223,210
PlumX Metrics