Tax-Motivated Profit Shifting in Big 4 Networks: Evidence from Europe

59 Pages Posted: 12 May 2021

See all articles by Anastasios Elemes

Anastasios Elemes

ESSEC Business School

Bradley S. Blaylock

University of Oklahoma - Michael F. Price College of Business

Crawford Spence

Concordia University

Date Written: March 23, 2021

Abstract

Accounting research on tax has primarily focused on documenting the income shifting strategies of multinational corporations. However, no studies, as far as we are aware, have hitherto explored how large accountancy firms manage their own tax affairs despite being huge economic entities in their own right. Using a unique private firm dataset of Big 4 affiliated firms from 30 European countries we examine whether the Big 4 shift income among their separate legal entities. Despite apparent disincentives to doing so, we find archival evidence consistent with tax-motivated income shifting. Difference-in-difference specifications around the incorporation of Deloitte EMEA in the U.K. and PwC Europe in Germany provide further evidence consistent with income shifting increasing among Deloitte and PwC affiliates subsequent to the incorporation of their respective regional coordinating entities. In cross-sectional analyses we find evidence consistent with incentives to engage in outbound income shifting being weaker for unprofitable affiliates. We also provide evidence consistent with the Big 4 engaging in income shifting only in countries with favorable tax conditions/weak tax enforcement. Finally, we find evidence in line with debt allocation and intangible asset placement being important channels through which the Big 4 achieve their income shifting objectives. Our study contributes to the literature by being the first to open the black box of the Big 4’s own tax planning practices.

Keywords: Big 4 Affiliated Firms, Income Shifting, Tax Avoidance, Global Firms, Cross-Border Coordination

JEL Classification: M40, M41, M42, H20, H21, H26

Suggested Citation

Elemes, Anastasios and Blaylock, Bradley S. and Spence, Crawford, Tax-Motivated Profit Shifting in Big 4 Networks: Evidence from Europe (March 23, 2021). Accounting, Organizations and Society, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3842597 or http://dx.doi.org/10.2139/ssrn.3842597

Anastasios Elemes (Contact Author)

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

Bradley S. Blaylock

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Crawford Spence

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

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