How Do Multinational Companies Respond to Destination-based Taxes?

56 Pages Posted: 7 Jun 2022 Last revised: 3 Jan 2024

See all articles by Lisa De Simone

Lisa De Simone

University of Texas at Austin

Marcel Olbert

London Business School - Department of Accounting; ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research

Date Written: January 3, 2024

Abstract

We exploit a 2015 change in European value-added taxes (VAT) to study how multinational companies (MNCs) respond to destination-based taxation. Difference-in-differences results suggest that MNCs reported disproportionately high digital business-to-consumer (B2C) services sales in low-VAT countries under an origin-based system. A 2015 reform required a destination-based system, effectively curbing this tax planning behavior. However, MNCs also decreased employment in low-VAT countries and increased income tax-motivated profit shifting post-reform. Our findings indicate that destination-based taxes curb corporate tax planning for mobile tax bases, but tax system changes have real effects and incentivize tax avoidance for other tax bases taxed at origin.

Keywords: Consumption Taxes; Value-added Taxes; Digital Economy; Tax Avoidance; Employment; Profit Shifting; OECD Pillar 1

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

Suggested Citation

De Simone, Lisa and Olbert, Marcel, How Do Multinational Companies Respond to Destination-based Taxes? (January 3, 2024). Available at SSRN: https://ssrn.com/abstract=4125715 or http://dx.doi.org/10.2139/ssrn.4125715

Lisa De Simone

University of Texas at Austin ( email )

2110 SPEEDWAY
Stop B6400
Austin, TX 78705
United States

HOME PAGE: http://www.lisa-desimone.com

Marcel Olbert (Contact Author)

London Business School - Department of Accounting ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research ( email )

United States

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