Arbeitspapier

The three parties in the race to the bottom : host governments, home governments and multinational companies

Most studies of tax competition and the race to the bottom focus on potential host countries competing for mobile capital, neglecting the role of corporate tax planning and of home governments that facilitate this planning. This neglect in part reflects the narrow view frequently taken of the policy instruments that countries have available in tax competition. But high-tax host governments can, for example, permit income to be shifted out to tax havens as a way of attracting mobile companies. Home countries will cooperate in this shift if their companies? gain is greater than any reduction in the domestic tax base. We use various types of U.S. data, including firm level tax files, to identify the role of the three parties (host governments, home governments and MNCs) in the evolution of tax burdens on U.S. companies abroad from 1992 to 2002. This period is of particular interest because the United States introduced regulations in 1997 that greatly simplified the use of more aggressive tax planning techniques. The evidence indicates that from 1992 to 1998 the decline in effective tax rates on U.S. companies was driven largely by host governments defending their market share. But after 1998, tax avoidance behavior seems much more important. One indication is that effective tax rates on U.S. companies had a much weaker link with local statutory tax rates. After 1997, the new regulations motivated a very large growth in intercompany payments and a parallel growth of holding company income abroad. We attempt to estimate how many of these payments were deductible in the host country, and conclude that by 2002 the companies were saving about $7.0 billion per year by using the more aggressive planning strategies. This amounts to about 4 percent of companies? foreign direct investment income and about 15 percent of their foreign tax burden.

Sprache
Englisch

Erschienen in
Series: CESifo Working Paper ; No. 1613

Klassifikation
Wirtschaft
Business Taxes and Subsidies including sales and value-added (VAT)
State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects
Thema
Steuerwettbewerb
Unternehmensbesteuerung
Außensteuerrecht
Steuerplanung
Steuerbelastung
Multinationales Unternehmen
USA

Ereignis
Geistige Schöpfung
(wer)
Altshuler, Rosanne
Grubert, Harry
Ereignis
Veröffentlichung
(wer)
Center for Economic Studies and ifo Institute (CESifo)
(wo)
Munich
(wann)
2005

Handle
Letzte Aktualisierung
10.03.2025, 11:45 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
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Objekttyp

  • Arbeitspapier

Beteiligte

  • Altshuler, Rosanne
  • Grubert, Harry
  • Center for Economic Studies and ifo Institute (CESifo)

Entstanden

  • 2005

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