Does Tax Enforcement Disparately Affect Domestic versus Multinational Corporations Around the World?

47 Pages Posted: 16 Aug 2018 Last revised: 26 Jan 2020

See all articles by Lisa De Simone

Lisa De Simone

University of Texas at Austin

Bridget Stomberg

Indiana University - Kelley School of Business

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting

Date Written: December 13, 2019

Abstract

Global tax enforcement has received increased attention since the Financial Crisis, with much stated focus on curbing perceived harmful tax practices of multinational entities. Yet multinationals can avoid tax in multiple countries whereas domestic firms cannot. We therefore examine whether there is a differential relation between changes in enforcement spending and the tax avoidance of domestic versus multinational entities. Using OECD data on 47 countries from 2005 to 2013, we find that increases in home-country enforcement spending are related to less firm-level tax avoidance for domestic firms relative to multinational entities. Multinationals engage in less tax-motivated income shifting out of their home country when home-country enforcement increases but they simultaneously increase their tax avoidance in foreign countries, which allows them to maintain a consistent level of worldwide tax avoidance. Results are robust to multiple measures of tax enforcement and avoidance across multiple countries and databases.

Keywords: tax enforcement, tax avoidance, international tax, income shifting

Suggested Citation

De Simone, Lisa and Stomberg, Bridget and Williams, Brian, Does Tax Enforcement Disparately Affect Domestic versus Multinational Corporations Around the World? (December 13, 2019). Kelley School of Business Research Paper No. 18-68, Stanford University Graduate School of Business Research Paper No. 18-37, Available at SSRN: https://ssrn.com/abstract=3225191 or http://dx.doi.org/10.2139/ssrn.3225191

Lisa De Simone

University of Texas at Austin ( email )

2110 SPEEDWAY
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Austin, TX 78705
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HOME PAGE: http://www.lisa-desimone.com

Bridget Stomberg

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Brian Williams (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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