Does Tax Enforcement Disparately Affect Domestic versus Multinational Corporations Around the World?
47 Pages Posted: 16 Aug 2018 Last revised: 26 Jan 2020
Date Written: December 13, 2019
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
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