Do US Firms Pay Less Tax than Their European Peers? On Firm Characteristics, Profit Shifting Opportunities, and Tax Legislation as Determinants of Tax Differentials

55 Pages Posted: 30 May 2018

See all articles by Michael Overesch

Michael Overesch

Universität zu Köln

Sabine Schenkelberg

University of Cologne

Georg Wamser

University of Tuebingen; ETH Zurich

Date Written: April 09, 2018

Abstract

Using pairs of similar US and European firms listed on the S&P500 or StoxxEurope600, we examine effective tax differentials between US multinational corporations (MNCs) and their European peers. We show that statutory tax rates and profit shifting opportunities are important determinants of effective tax rates. Our findings suggest substantially lower total tax payments of US MNCs after the 2017 US tax reform. Based on past reforms of Controlled Foreign Company (CFC) rules and of the principle of worldwide taxation, we confirm that international tax legislation affects effective tax expenses. We also provide evidence for heterogeneity in firm responses: MNCs with profit shifting opportunities benefit most from more-lenient CFC rules.

Keywords: effective tax rate, tax avoidance, tax reform, CFC rule, international taxation, pair matching, difference-in-differences analysis

JEL Classification: H260, H320, F230

Suggested Citation

Overesch, Michael and Schenkelberg, Sabine and Wamser, Georg, Do US Firms Pay Less Tax than Their European Peers? On Firm Characteristics, Profit Shifting Opportunities, and Tax Legislation as Determinants of Tax Differentials (April 09, 2018). CESifo Working Paper Series No. 6960. Available at SSRN: https://ssrn.com/abstract=3185969

Michael Overesch

Universität zu Köln ( email )

Albertus-Magnus-Platz
WiSo-Gebäude
Cologne, 50923
Germany
0221/470-5605 (Phone)

HOME PAGE: http://www.steuer.uni-koeln.de/

Sabine Schenkelberg

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Georg Wamser (Contact Author)

University of Tuebingen ( email )

Wilhelmstr. 19
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

ETH Zurich ( email )

Weinbergstr. 35
Zurich, 8003
Switzerland

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