FOREIGN TAXES AND THE GROWING SHARE OF U.S. MULTINATIONAL COMPANY INCOME ABROAD: PROFITS, NOT SALES, ARE BEING GLOBALIZED

Harry Grubert

98 citations0/0 files storedNational Tax Journal

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Corporate Taxation and Avoidance Taxation and Legal Issues International Business and FDI

Abstract

The foreign share of the worldwide income of U.S. multinational corporations (MNCs) has risen sharply in recent years. Data from a panel of 754 large MNCs indicate that the MNforeign income share increased by 14 percentage points from 1996 to 2004. The differential between a company's U.S. and foreign effective tax rates exerts a significant effect on the share of its income abroad, largely through changes in foreign and domestic profit margins rather than a shift in sales. U.S.-foreign tax differentials are estimated to have raised the foreign share of MNC worldwide income by about 12 percentage points by 2004. Lower foreign effective tax rates had no significant effect on a company s domestic sales or on the growth of its worldwide pre-tax profits. Lower taxes on foreign income do not seem to promote "competitiveness. "

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References

1921Survey of current business 1994Fiscal Paradise: Foreign Tax Havens and American Business 1991Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making 2003Intangible Income, Intercompany Transactions, Income Shifting, and the Choice of Location 2009Domestic Effects of the Foreign Activities of US Multinationals 2009Multinational Firm Tax Avoidance and Tax Policy 2001Has U.S. Investment Abroad Become More Sensitive to Tax Rates?2022The Three Parties in the Race to the Bottom: Host Governments, Home Governments and Multinational Companies

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