Why are U.S.-Owned Foreign Subsidiaries Not Tax Aggressive?

Kohlhase, Saskia and Pierk, Jochen (2016) Why are U.S.-Owned Foreign Subsidiaries Not Tax Aggressive? WU International Taxation Research Paper Series, 2016-06. WU Vienna University of Economics and Business, Universität Wien, Vienna.


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This paper empirically tests a theory laid out in Scholes et al. (2015, p. 315) that the U.S. worldwide tax system reduces the incentive of U.S. parent companies to be tax aggressive in their foreign subsidiaries. Investors subject to a worldwide tax system pay taxes on their worldwide income, regardless of the origin thereof. Therefore, a U.S. investor pays the difference between the effective tax payment abroad and the higher U.S. statutory tax when profits are repatriated. In contrast, investors subject to territorial tax systems gain the full tax savings from being tax aggressive abroad. Our results show that U.S.-owned foreign subsidiaries have a by 1.2 percentage point higher average GAAP effective tax rate (ETR) compared to subsidiaries owned by foreign investors from countries with a territorial system. We contribute to the literature by showing a mechanism, other than cross-country profit shifting, why U.S. multinational companies have higher GAAP ETRs than multinationals subject to territorial tax systems. (authors' abstract)

Item Type: Paper
Additional Information: Editors: Eva Eberhartinger, Michael Lang, Rupert Sausgruber and Martin Zagler (Vienna University of Economics and Business), and Erich Kirchler (University of Vienna)
Keywords: Foreign subsidiaries / Tax aggressiveness / Tax avoidance / Territorial tax system / Worldwide tax system
Classification Codes: JEL H25, H26, H32
Depositing User: ePub Administrator
Date Deposited: 01 Sep 2016 10:26
Last Modified: 22 Oct 2019 00:41
URI: https://epub.wu.ac.at/id/eprint/5164


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