NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Income Shifting in U.S. Multinational Corporations

David Harris, Randall Morck, Joel Slemrod, Bernard Yeung

NBER Working Paper No. 3924
Issued in December 1991
NBER Program(s):   PE

It is often claimed that multinational firms avoid taxes by shifting income from high-tax to low-tax countries. Using a five year panel of data for two hundred large U.S. manufacturing firms, we find that U.S. tax liability, as a fraction either of U.S. sales or U.S. assets, is related to the location of foreign subsidiaries in a way that is consistent with tax-motivated income shifting. Having a subsidiary in a tax haven, Ireland, or one of the "four dragon" Asian countries - all characterized by low tax rates - is associated with lower U.S. tax ratios. Having a subsidiary in a high-tax region is associated with higher U.S. tax ratios. These results suggest that U.S. manufacturing companies shift income out of high-tax countries into the U.S., and from the U.S. to low-tax countries. Such behavior certainly lowers worldwide tax liabilities for larger U.S. manufacturing companies and appears to significantly lower their U.S. tax liabilities as well.

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Document Object Identifier (DOI): 10.3386/w3924

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