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

50 Pages Posted: 16 Aug 2018 Last revised: 18 Jul 2023

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

Texas A&M University

Date Written: July 1, 2023

Abstract

Global tax enforcement policies have received increased attention since the Financial Crisis, with much stated focus on curbing perceived harmful tax practices of multinational corporations. Yet there is a dearth of evidence on possible differential effects of home country tax enforcement on multinationals. We take a step toward filling this void in the tax policy discussion by examining whether there is a differential relation between changes in home-country enforcement and the tax avoidance of domestic versus multinational corporations. Using OECD data on 50 countries from 2005 to 2019, we find increases in home-country enforcement are associated with lower levels of tax avoidance for domestic firms than for multinational corporations. Using a subset of firms from the Bureau van Dijk database, we find that multinationals avoid more tax in foreign countries when home-country enforcement increases. Results are stronger for multinationals with a higher proportion of subsidiaries in low-tax countries and when enforcement spending is low. These findings have implications for policymakers and highlight the importance of coordinated enforcement efforts across jurisdictions — such as the recently proposed global minimum tax — to successfully curb multinationals’ worldwide tax avoidance.

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? (July 1, 2023). 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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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)

Texas A&M University ( email )

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

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