Tax Avoidance and Vertical Interlocks within Multinational Enterprises

This study investigates to what extent multinational enterprises appoint managers jointly at the headquarter and a foreign subsidiary (vertical manager interlocks, VMIs) in order to facilitate tax planning. We use a cross-section data set taken from the AMADEUS database to show that VMIs are observed more frequently in MNEs with a higher potential for tax-induced profit shifting. We also provide evidence indicating that the implementation of VMIs is motivated by an internal principal-agent conflict arising from conflicting interests between the MNE and high-tax subsidiary managers. Finally, we show that the use of VMI structures is associated, ceteris paribus, with a lower effective tax rate.

Keywords: management structure, profit shifting, principal-agent-theory

JEL Classification: H25, H26, M12

Suggested Citation: Suggested Citation

Giese, Henning and Koch, Reinald and Gamm, Markus, Tax Avoidance and Vertical Interlocks within Multinational Enterprises (June 15, 2022). Arqus Quantitative Tax Research Discussion Paper No. 270, Available at SSRN: https://ssrn.com/abstract=4137265 or http://dx.doi.org/10.2139/ssrn.4137265