Taxable Income Differences between Foreign and Domestic Controlled Corporations in Norway

Posted: 5 Oct 2004

See all articles by Shahrokh M. Saudagaran

Shahrokh M. Saudagaran

University of Washington, Tacoma - Milgard School of Business

John Christian Langli

BI Norwegian Business School - Department of Accounting, Auditing and Business Analytics

Abstract

Studies mainly in the United States and United Kingdom have documented that foreign controlled corporations (FCCs) report significantly lower taxable income compared to domestic controlled corporations (DCCs). This taxable income differential has been partly attributed to income shifting by multinational corporations. Using a sample of 78,879 firm-year observations from 1993 to 1996, we find similar systematic differences for firms in the manufacturing, retail and wholesale sectors in Norway. The taxable income to sales ratio is approximately 2.6 percentage points lower for FCCs compared to DCCs after controlling for start-up costs, size, industry affiliation, leverage and capital intensity. The results are statistically significant in all years and independent of whether taxable income is measured as a fraction of sales, total assets or book value of equity. Previous research has indicated that income shifting is more prevalent among large firms. This study provides evidence on small and medium-sized firms operating in Norway. With the exception of really small corporations in the manufacturing industry (e.g. with sales less than NOK 6.7 million or US$ 1 million), we find that the negative taxable income differential exists independent of the size of the corporations.

Keywords: Income shifting, taxable income differential, transfer price, foreign controlled corporations, Norway

JEL Classification: M41, M43, M47, H25

Suggested Citation

Saudagaran, Shahrokh M. and Langli, John Christian, Taxable Income Differences between Foreign and Domestic Controlled Corporations in Norway. Available at SSRN: https://ssrn.com/abstract=599805

Shahrokh M. Saudagaran

University of Washington, Tacoma - Milgard School of Business ( email )

1900 Commerce Street
Campus Box 358420
Tacoma, WA 98402-3100
United States

John Christian Langli (Contact Author)

BI Norwegian Business School - Department of Accounting, Auditing and Business Analytics ( email )

N-0442 Oslo
Norway

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