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Abstract:
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This dissertation analyzes ways in which Multinational Enterprises (MNEs) shift profits from
one country to another to reduce their income tax expense. This is an important topic for a
number of reasons. From a country’s perspective, its income tax rates and policies can have a
significant impact upon its tax revenue, economic competitiveness, and the vibrancy of its
economy. From the MNE’s perspective, income tax rates and policies determine a firm’s tax
obligations, and thus affect net income and enterprise value. The dissertation examines several
ways in which MNEs shift profits to reduce income taxes, and consists of five chapters.
The introductory chapter reviews the economic evidence demonstrating firms shift profits from
one country to another in response to tax rates. In the past two decades a number of economic
studies have shown firms use tax and accounting techniques to shift reported profits to low tax
jurisdictions, and that chapter reviews key articles that have demonstrated this. The second
paper explains how MNEs finance international investments to shift interest income to low-tax
jurisdictions. It reviews government tax policies in a number of countries that have been enacted
to limit interest income shifting, and recommends an approach to control this activity. The third
paper examines tax efficient supply chains, in which tax departments and supply chain
organizations collaborate to site business operations to achieve supply chain objectives and
reduce tax obligations. The fourth chapter analyzes how some U.S.-headquartered firms have
moved their corporate headquarters from the U.S. to tax havens, to reduce their tax expense and
avoid U.S. international tax policies. The fifth and final chapter examines new U.S. tax
regulations that propose to value intellectual property transfers in the same way outside investors
would, which the U.S. Internal Revenue Service (IRS) calls its “investor model.” It also makes
recommendations concerning how the investor model can be improved. |
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