Consumption Taxes and Corporate Tax Planning - Evidence from European Service Firms

70 Pages Posted: 24 Feb 2019

See all articles by Marcel Olbert

Marcel Olbert

University of Mannheim - Business School

Ann-Catherin Werner

University of Mannheim Business School

Date Written: February 7, 2019

Abstract

Consumption taxes are a primary source of tax revenue in many jurisdictions. Exploiting a unique setting in Europe with 28 staggered and plausibly exogenous value-added tax rate changes, this study examines the effect of consumption taxes on corporate tax planning. We find that service firms report 0.5 percent less in sales if consumption taxes increase by one percentage point. Consistent with incentives for tax planning and economic theory, the effect is stronger for firms with greater discretion over where to pay value-added taxes and firms bearing a greater part of the tax burden. We then show that the extent and the channels of profit shifting depend on firms’ responsiveness to consumption taxes, suggesting that consumption taxes place a constraint on corporate income tax planning.

Keywords: Consumption Taxes, Tax Planning, Profit Shifting

JEL Classification: H22, H24, H25, H32, M48

Suggested Citation

Olbert, Marcel and Werner, Ann-Catherin, Consumption Taxes and Corporate Tax Planning - Evidence from European Service Firms (February 7, 2019). Available at SSRN: https://ssrn.com/abstract=3330523 or http://dx.doi.org/10.2139/ssrn.3330523

Marcel Olbert (Contact Author)

University of Mannheim - Business School ( email )

Schloss Ostflügel
Mannheim, 68131
Germany

Ann-Catherin Werner

University of Mannheim Business School ( email )

Chair of International Taxation
Schloss
Mannheim, 68131
Germany

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