Profit Shifting During Foreign Tax Holidays
Forthcoming in The Accounting Review
51 Pages Posted: 12 Aug 2021 Last revised: 19 Sep 2022
Date Written: August 9, 2022
We undertake the first empirical analysis of profit shifting by U.S. firms during foreign tax holidays. We show that foreign tax holidays have become a prevalent and powerful tax planning strategy among U.S. firms. We find that U.S. firms significantly increase their outbound profit shifting while participating in foreign tax holidays. However, we also find that profit shifting associated with tax holidays comes at the cost of increased tax uncertainty. Our results have important implications for policy making and for understanding firm behavior.
Keywords: income shifting; tax holidays; international tax
JEL Classification: H25; H26; M41
Suggested Citation: Suggested Citation