Flexibility in Income Shifting under Losses
| Autor: | Mohammed Mardan, Dirk Schindler, Petro Lisowsky, Arnt O. Hopland |
|---|---|
| Rok vydání: | 2017 |
| Předmět: |
Economics and Econometrics
Labour economics Leverage (finance) Capital structure Ex-ante media_common.quotation_subject 05 social sciences Transfer pricing 050201 accounting Monetary economics Payment Multinational corporation Accounting 0502 economics and business Economics Internal debt 050207 economics Empirical evidence Finance media_common |
| Zdroj: | The Accounting Review. 93:163-183 |
| ISSN: | 1558-7967 0001-4826 |
| Popis: | This study examines the flexibility of multinational firms to adjust their income-shifting strategies—whether using transfer pricing or internal debt—during the tax year to react to affiliates' operating losses. We develop the concept that under flexibility, multinationals can adjust their inter-affiliate payments ex post (i.e., after financial outcomes are revealed, but before the end of the tax year) to minimize worldwide tax payments. Without flexibility, multinationals must commit to their affiliates' income-shifting strategies ex ante (i.e., before financial outcomes are revealed). Our central prediction is that under ex post income shifting, loss affiliates report lower transfer prices and internal leverage than profitable affiliates; under ex ante income shifting, affiliates report the same transfer prices and internal capital structure, regardless of making losses. Using novel data on direct transfer payments and internal debt of Norwegian affiliates, we find empirical evidence that transfer pricing, particularly related to user fees, but not internal debt, provides flexibility to adjust income shifting ex post. In additional tests, we confirm that our results reflect flexibility rather than loss affiliates' poor performance. Our study should interest tax policymakers and researchers by identifying how various mechanisms allow multinational firms to shift income when they face losses. JEL Classifications: F23; H25; H87. |
| Databáze: | OpenAIRE |
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