Do Swedish Multinationals Pay Less in Taxes than Domestic Firms?

Research output: Contribution to journalArticle

Abstract

In recent years, there has been growing concern that multinational enterprises (MNEs) engage in strategic tax planning in order to shift profits to low-tax jurisdictions. This common perception is generally confirmed by empirical evidence, which is foremost provided for countries with high corporate taxes and relatively complex tax systems. We investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting. We do this by using detailed census data from corporate income statements and balance sheets filed by Swedish manufacturing firms between 1997 and 2007. Many previous studies have used tax-rate differences to identify profit shifting. These studies, however, run the risk of overestimating the amount of tax shifting as this method entangles tax-planning activities with the effect a lower corporate tax rate has on resulting profits. We avoid this by comparing MNEs with domestic firms unable to benefit from other tax jurisdictions. In particular, we identify systematic differences in tax payments, earnings (before interest and taxes), and equity ratios between multinational and comparable domestic firms based on propensity score matching. In addition, we examine the tax behavioral impact of acquiring multinational status using difference-in-differences estimations and/or propensity-score matching. Our results reveal that the extent to which multinational firms’ have lower tax payments than their domestic counterparts depends on their production characteristics and foreign market outreach. In particular, we find evidence indicating that firms operating in few foreign markets and firms that become multinational engage in profit shifting from Sweden.

Details

Authors
Organisations
External organisations
  • University of Malta
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • firm behavior, tax planning, profit shifting
Original languageEnglish
Pages (from-to)393–413
JournalWorld Economy
Volume41
Issue number2
Publication statusPublished - 2018
Publication categoryResearch
Peer-reviewedYes