Tax Planning through Advanced Tax Rulings – An Exploratory Analysis Using the Luxembourg Tax Leaks

Li, Oliver Zhen; Murphy, Frank; Lusch, Stephen J.

doi:10.2139/ssrn.3406285

Cited by 7 publications

(3 citation statements)

References 24 publications

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“…Multinational firms' corporate tax avoidance has been discussed prominently in the media (e.g., Yadron et al, 2013), in academia (e.g., the infamous "Luxembourg Tax Leaks") (Li et al, 2019;Nesbitt et al, 2017), and in the discussion on tax base erosion and profit shifting (Dharmapala, 2014). 2 Conceptually, tax avoidance strategies take three forms: (a) shifting taxable income to foreign or state jurisdictions that have low tax rates (tax rate avoidance), (b) lowering the domestic tax base (tax base avoidance), or (c) a combination of both strategies (Guenther et al, 2019;Lisowsky, 2010;Sikes and Verrecchia, 2020).…”

Section: Introductionmentioning

confidence: 99%

Measuring corporate tax rate and tax base avoidance of U.S. Domestic and U.S. multinational firms

Lampenius

Shevlin

Stenzel

2021

Journal of Accounting and Economics

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We develop an approach based on publicly available data to decompose and quantify tax avoidance into two separate components: tax rate avoidance and tax base avoidance. Our measures are based on the average statutory tax rate, which accounts for the statutory tax rates across all transactions of a firm. We illustrate and validate our measures using simulation data, the Tax Reform Act of 1986, the Tax Cuts and Jobs Act of 2017, changes in tax rate avoidance and tax base avoidance across time, bonus depreciation time periods, several sample splits of U.S. multinational and domestic firms, differences across industries, and firms operating in tax haven locations. The measures allow regulators and researchers to gain insights into these two conceptually different tax avoidance strategies.

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Section: Introductionmentioning

confidence: 99%

Measuring corporate tax rate and tax base avoidance of U.S. Domestic and U.S. multinational firms

Lampenius

Shevlin

Stenzel

2021

Journal of Accounting and Economics

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“…13 Holding companies are often located in jurisdictions that lightly tax passive income and have double tax treaties (e.g., Switzerland has over 100) that, at times, can eliminate withholding taxes on cross-jurisdiction payments. 14 Li et al (2020) note that the holding company structures in their sample average about 6.5 entities deep, often with intercompany notes over $1 billion, suggesting the need to move capital in a tax-efficient manner is economically significant. In addition to the tax benefits from avoiding income and non-income taxes (e.g., withholding taxes), internal financing via holding companies allows MNCs to separate control of resources for governance purposes.…”

Section: Foreign Holding Companiesmentioning

confidence: 99%

Foreign Holding Companies and the US Taxation of Foreign Earnings: Evidence from the Tax Increase Prevention and Reconciliation Act of 2005*

Murphy¹

2023

Contemporary Accting Res

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I analyze US multinationals' (MNCs) use of foreign holding companies in their organizational structures and the impact of holding companies on internal capital markets. The look‐thru rule in the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) reduces the after‐tax cost of foreign intercompany financing transactions. I use TIPRA as a natural experimental setting to test whether a shift in US tax policy that reduces the cost of moving foreign capital increased firms' reliance on foreign holding company subsidiaries. I find that MNCs responded to TIPRA by creating more foreign holding companies. Furthermore, consistent with the policy objectives of TIPRA, I document that MNCs that rely on holding companies gained tax efficiencies in their post‐TIPRA foreign internal capital markets, reducing domestic taxation on foreign earnings and easing financial constraints. Overall, my results expand our understanding of foreign organizational structure decisions and their internal financing benefits. I contribute to the tax literature by documenting a response to TIPRA that sheds light on the growing complexity of foreign subsidiary ownership structures.

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“…2021;Dyreng and Lindsey 2009;Dyreng, Lindsey, Markle, and Shackelford 2015;Law and Mills 2022;Murphy 2023; Lafitte and Toubal 2022;Olbert and Severin 2023;Zhen, Lusch, and Murphy 2023). Furthermore, the non-disclosure of tax haven subsidiaries to investors and the general public, as documented inDyreng et al (…”

mentioning

confidence: 99%

Multinational firms in tax havens – Corporate motives, regulatory countermeasures, and recent statistics

Submitter,

Olbert,

Spengel

et al. 2023

SSRN Journal

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Tax Planning through Advanced Tax Rulings – An Exploratory Analysis Using the Luxembourg Tax Leaks

Cited by 7 publications

References 24 publications

Measuring corporate tax rate and tax base avoidance of U.S. Domestic and U.S. multinational firms

Measuring corporate tax rate and tax base avoidance of U.S. Domestic and U.S. multinational firms

Foreign Holding Companies and the US Taxation of Foreign Earnings: Evidence from the Tax Increase Prevention and Reconciliation Act of 2005*

Multinational firms in tax havens – Corporate motives, regulatory countermeasures, and recent statistics

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