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Do Swedish Multinationals Pay Less in Taxes than Domestic Firms?

Olofsdotter, Karin LU ; Hansson, Åsa LU and Thede, Susanna (2017) In World Economy
Abstract
In recent years, there has been growing concern that multinational enterprises (MNEs) engage in strategic tax planning in order to shift profits to low-tax jurisdictions. This common perception is generally confirmed by empirical evidence, which is foremost provided for countries with high corporate taxes and relatively complex tax systems. We investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting. We do this by using detailed census data from corporate income statements and balance sheets filed by Swedish manufacturing firms between 1997 and 2007. Many previous studies have used tax-rate differences to identify profit shifting. These studies, however, run the risk of... (More)
In recent years, there has been growing concern that multinational enterprises (MNEs) engage in strategic tax planning in order to shift profits to low-tax jurisdictions. This common perception is generally confirmed by empirical evidence, which is foremost provided for countries with high corporate taxes and relatively complex tax systems. We investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting. We do this by using detailed census data from corporate income statements and balance sheets filed by Swedish manufacturing firms between 1997 and 2007. Many previous studies have used tax-rate differences to identify profit shifting. These studies, however, run the risk of overestimating the amount of tax shifting as this method entangles tax-planning activities with the effect a lower corporate tax rate has on resulting profits. We avoid this by comparing MNEs with domestic firms unable to benefit from other tax jurisdictions. In particular, we identify systematic differences in tax payments, earnings (before interest and taxes), and equity ratios between multinational and comparable domestic firms based on propensity score matching. In addition, we examine the tax behavioral impact of acquiring multinational status using difference-in-differences estimations and/or propensity-score matching. Our results reveal that the extent to which multinational firms’ have lower tax payments than their domestic counterparts depends on their production characteristics and foreign market outreach. In particular, we find evidence indicating that firms operating in few foreign markets and firms that become multinational engage in profit shifting from Sweden. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
in press
subject
keywords
firm behavior, tax planning, profit shifting
in
World Economy
publisher
Wiley-Blackwell
ISSN
1467-9701
language
English
LU publication?
yes
id
19707215-5e06-48c3-bffc-3aaaac5b550e
date added to LUP
2017-11-29 10:06:52
date last changed
2017-12-06 14:49:07
@article{19707215-5e06-48c3-bffc-3aaaac5b550e,
  abstract     = {In recent years, there has been growing concern that multinational enterprises (MNEs) engage in strategic tax planning in order to shift profits to low-tax jurisdictions. This common perception is generally confirmed by empirical evidence, which is foremost provided for countries with high corporate taxes and relatively complex tax systems. We investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting. We do this by using detailed census data from corporate income statements and balance sheets filed by Swedish manufacturing firms between 1997 and 2007. Many previous studies have used tax-rate differences to identify profit shifting. These studies, however, run the risk of overestimating the amount of tax shifting as this method entangles tax-planning activities with the effect a lower corporate tax rate has on resulting profits. We avoid this by comparing MNEs with domestic firms unable to benefit from other tax jurisdictions. In particular, we identify systematic differences in tax payments, earnings (before interest and taxes), and equity ratios between multinational and comparable domestic firms based on propensity score matching. In addition, we examine the tax behavioral impact of acquiring multinational status using difference-in-differences estimations and/or propensity-score matching. Our results reveal that the extent to which multinational firms’ have lower tax payments than their domestic counterparts depends on their production characteristics and foreign market outreach. In particular, we find evidence indicating that firms operating in few foreign markets and firms that become multinational engage in profit shifting from Sweden.},
  author       = {Olofsdotter, Karin and Hansson, Åsa and Thede, Susanna},
  issn         = {1467-9701},
  keyword      = {firm behavior,tax planning,profit shifting},
  language     = {eng},
  publisher    = {Wiley-Blackwell},
  series       = {World Economy},
  title        = {Do Swedish Multinationals Pay Less in Taxes than Domestic Firms?},
  year         = {2017},
}