This thesis examines the income-shifting behaviour of multinational corporations when they are facing international corporate income tax rate differentials. Multinational corporations may apply tax-planning strategies in order to shift their pre-tax profits from a high-tax country to a low-tax country; therefore, the same amount of money would be subject to a lower tax rate. By doing so, multinational corporations minimize their global tax liabilities without changing their total income. The first essay develops a simple general equilibrium model by which to explore the effect of tax planning on the host country in terms of social welfare and optimal taxation. We endogenize multinational corporations’ investment decisions by allowing the user cost of capital to be affected by shifting decisions. We find that if tax rates are not excessively high, then an increase in tax planning activity causes a rise in optimal corporate tax rates, and a decline in multinational investment. Thus, fears of a “race to the bottom” in corporate tax rates may be misplaced. Also, we find that the residents in high-tax countries may be better off with (some) income shifting. We prove that there is an interior optimal thin capitalization rule (a restriction on the debt-to-equity ratio) that is lower than the degree of tax planning preferred by multinational firms. The second essay empirically examines the evidence of income-shifting behaviour of Canadian multinational corporations. The results are consistent with the income-shifting hypothesis that multinationals are inclined to shift their pre-tax profits to low-tax jurisdictions. I find that having non-arm’s length transactions with related parties in tax-haven countries has a significant negative impact on the taxable income that is reported in Canada. Further, I compare the different roles between small havens and large havens and find that the effect of having transactions with small havens is significantly negative, while the effect of having transactions with large tax havens is not significant. Also, I find that if Canadian corporations control their foreign-related corporations with whom they had non-arm’s length transactions, then they are more likely to report lower taxable incomes in Canada than are those that have other types of relationships with their foreign-related corporations.

This thesis examines the income-shifting behaviour of multinational corporations when they are facing international corporate income tax rate differentials. Multinational corporations may apply tax-planning strategies in order to shift their pre-tax profits from a high-tax country to a low-tax country; therefore, the same amount of money would be subject to a lower tax rate. By doing so, multinational corporations minimize their global tax liabilities without changing their total income. The first essay develops a simple general equilibrium model by which to explore the effect of tax planning on the host country in terms of social welfare and optimal taxation. We endogenize multinational corporations’ investment decisions by allowing the user cost of capital to be affected by shifting decisions. We find that if tax rates are not excessively high, then an increase in tax planning activity causes a rise in optimal corporate tax rates, and a decline in multinational investment. Thus, fears of a “race to the bottom” in corporate tax rates may be misplaced. Also, we find that the residents in high-tax countries may be better off with (some) income shifting. We prove that there is an interior optimal thin capitalization rule (a restriction on the debt-to-equity ratio) that is lower than the degree of tax planning preferred by multinational firms. The second essay empirically examines the evidence of income-shifting behaviour of Canadian multinational corporations. The results are consistent with the income-shifting hypothesis that multinationals are inclined to shift their pre-tax profits to low-tax jurisdictions. I find that having non-arm’s length transactions with related parties in tax-haven countries has a significant negative impact on the taxable income that is reported in Canada. Further, I compare the different roles between small havens and large havens and find that the effect of having transactions with small havens is significantly negative, while the effect of having transactions with large tax havens is not significant. Also, I find that if Canadian corporations control their foreign-related corporations with whom they had non-arm’s length transactions, then they are more likely to report lower taxable incomes in Canada than are those that have other types of relationships with their foreign-related corporations.

I examine an unintended consequence of countries permitting or requiring a common set of accounting standards for unconsolidated financial reporting. Specifically, I test whether adoption of IFRS facilitates income tax-motivated profit shifting by multinational entities (MNEs). MNEs often justify transfer prices to tax authorities by benchmarking intercompany profit allocations against a range of profit rates reported by economically comparable, independent firms that use similar accounting standards. A larger set of qualifying benchmark firms resulting from IFRS adoption could allow opportunistic managers to support more tax-advantaged transfer prices. I use a database of EU unconsolidated financial and ownership information to identify tax-motivated income shifting over 2001 to 2010. I estimate a statistically and economically significant 17.5 percent tax-motivated change in reported pre-tax profits following affiliate IFRS adoption, relative to no change in income shifting behavior for non-adopters. The magnitude of this effect increases in expansions to the set of potential benchmark firms upon affiliate IFRS adoption. / text

O presente estudo buscou identificar indícios da prática de income shifting por meio da manipulação dos preços de transferência por empresas abertas brasileiras, antes e após as alterações nas normas fiscais instituídas pela Lei nº 12.715/12 e pela IN RFB nº 1.312/12. A teoria econômica infere que as firmas multinacionais possuem incentivos a manipular os preços nas transações com suas partes relacionadas, de modo a transferir resultados a localidades com menores cargas fiscais, com o objetivo final de reduzir a carga tributária sobre o lucro total do grupo econômico. Com base na análise de dados em painel de 52 empresas abertas brasileiras que realizaram transações internacionais com partes relacionadas no período de 2010 a 2013, os resultados revelam que as empresas analisadas cujas controladas têm maior volume de transações com partes relacionadas internacionais apresentam menor tributação no grupo consolidado, e que firmas com maiores incentivos ao income shifting possuem maiores indicativos de transferência de resultados entre a controladora e o grupo total. Os resultados indicam que tais relações não sofreram modificações no período de vigência das novas normas tributárias no Brasil. As constatações levantadas representam robustos indícios de que as empresas brasileiras utilizam os preços de transferência para o alcance do income shifting, e que as alterações na legislação fiscal não foram capazes de coibir essa prática no seu primeiro ano em vigor. Os resultados representam uma contribuição importante para a literatura atual, porque trazem evidências inéditas obtidas em empresas sujeitas a regras tributárias domésticas, as quais não foram objeto de estudo empírico até então. / This study investigated evidences of income shifting practice via transfer prices manipulation by Brazilian listed companies, before and after the new fiscal rules promoted by Law nº 12.715/12 and Normative Instruction RFB nº 1.312/12. The economic theory infers that multinational firms have incentives to manipulate prices on intra-group transactions, in order to transfer profits to low-tax locations, aiming to reduce the global tax burden. Based on panel data analysis of 52 Brazilian listed companies with international transactions with related parties in the period from 2010 to 2013, the results reveal that companies whose controlling company has higher volume of transactions with related parties have lower global income tax burden in the consolidated group, and that companies with greater income shifting incentives have greater signs of profit transfers between the controlling company and the consolidated group. Results indicate that there were no changes in these relations in the period when the new tax rules became valid in Brazil. The outcomes represent robust evidences that Brazilian companies make use of transfer prices with aims to achieve income shifting, and the tax rules modifications were not capable to restrain this practice in the first valid year. The results represent a relevant contribution to the current literature, because they bear original and unknown evidences obtained by the exam of firms subjected to domestic tax rules not empirically studied up to now.

O presente estudo buscou identificar indícios da prática de income shifting por meio da manipulação dos preços de transferência por empresas abertas brasileiras, antes e após as alterações nas normas fiscais instituídas pela Lei nº 12.715/12 e pela IN RFB nº 1.312/12. A teoria econômica infere que as firmas multinacionais possuem incentivos a manipular os preços nas transações com suas partes relacionadas, de modo a transferir resultados a localidades com menores cargas fiscais, com o objetivo final de reduzir a carga tributária sobre o lucro total do grupo econômico. Com base na análise de dados em painel de 52 empresas abertas brasileiras que realizaram transações internacionais com partes relacionadas no período de 2010 a 2013, os resultados revelam que as empresas analisadas cujas controladas têm maior volume de transações com partes relacionadas internacionais apresentam menor tributação no grupo consolidado, e que firmas com maiores incentivos ao income shifting possuem maiores indicativos de transferência de resultados entre a controladora e o grupo total. Os resultados indicam que tais relações não sofreram modificações no período de vigência das novas normas tributárias no Brasil. As constatações levantadas representam robustos indícios de que as empresas brasileiras utilizam os preços de transferência para o alcance do income shifting, e que as alterações na legislação fiscal não foram capazes de coibir essa prática no seu primeiro ano em vigor. Os resultados representam uma contribuição importante para a literatura atual, porque trazem evidências inéditas obtidas em empresas sujeitas a regras tributárias domésticas, as quais não foram objeto de estudo empírico até então. / This study investigated evidences of income shifting practice via transfer prices manipulation by Brazilian listed companies, before and after the new fiscal rules promoted by Law nº 12.715/12 and Normative Instruction RFB nº 1.312/12. The economic theory infers that multinational firms have incentives to manipulate prices on intra-group transactions, in order to transfer profits to low-tax locations, aiming to reduce the global tax burden. Based on panel data analysis of 52 Brazilian listed companies with international transactions with related parties in the period from 2010 to 2013, the results reveal that companies whose controlling company has higher volume of transactions with related parties have lower global income tax burden in the consolidated group, and that companies with greater income shifting incentives have greater signs of profit transfers between the controlling company and the consolidated group. Results indicate that there were no changes in these relations in the period when the new tax rules became valid in Brazil. The outcomes represent robust evidences that Brazilian companies make use of transfer prices with aims to achieve income shifting, and the tax rules modifications were not capable to restrain this practice in the first valid year. The results represent a relevant contribution to the current literature, because they bear original and unknown evidences obtained by the exam of firms subjected to domestic tax rules not empirically studied up to now.

We investigate whether and to what extent the adoption of an intellectual property box increases innovative activity and the extent to which different types of firms benefit financially. We examine the adoption of the intellectual property box in Belgium because it allows us to cleanly identify the impact on innovative activity and effective tax rates. Our results indicate an overall increase in innovative activity as proxied by patent applications, grants, and highly-skilled employment, at the expense of patent quality. We also provide evidence that firms with patents on average enjoy 7.2% to 7.9% lower effective tax rates, with the greatest financial benefits accruing to multinational firms compared to domestic firms. Within multinational firms, those without income shifting opportunities appear to benefit more than other multinationals with income shifting opportunities. / Series: WU International Taxation Research Paper Series

One way a multinational corporation can further satisfy its primary objective, which is to maximize shareholder wealth, is to minimize the share of its income that is transferred through taxation to the various sovereign nations within which it does business. The profit maximizing firm attempts to maximize (minimize) taxable income in those jurisdictions where income tax burdens are the least (most) in such a way as to diminish the present value of its global total tax burden. While the US corporate income tax rate has remained relatively stable over the decades since most US income tax rates were last slashed as part of the Tax Reform Act of 1986, across the rest of the world, non-US corporate income tax rates have continued to fall. Even though the US statutory rate was among the lowest corporate income tax rates of any industrialized nation in 1988, by 2008, due to continuing rate decreases around the globe the US rate had become one of the highest corporate income tax rates amongst the G-8. In April of 2012, the US statutory rate as applied to corporate income became the highest among all the Organization for Cooperation and Economic Development (OECD) countries. This study will examine the behavior of option intensive corporations during the late 1990's. Coinciding with the longest recorded economic expansion in the history of the United States and coupled with the so-called "internet bubble" during the second half of the decade, this period of rapid stock price appreciation was also a time when many highly profitable companies faced substantially lower current US tax liabilities due to the large tax deductions resulting from the employee exercise of increasing quantities of non-qualified stock options at substantial gains. Enormous tax losses reported by employee stock option granting firms were sufficient to eliminate not only current US corporate income tax liabilities but also several years of future tax liabilities for some firms. Previous research has documented an increasing proportion of US multinational corporate income recognized in foreign jurisdictions, thereby escaping the relatively high US corporate tax rates until the foreign profits are repatriated back into the US. Perhaps US corporate income tax rates are so high in comparison to equally suitable substitute foreign locations that many firms have relocated their income producing activities to lower taxed jurisdictions abroad. Or it may be that US multinational firms engage in various cross border income shifting techniques to avoid high US corporate income tax rates and reduce their overall global tax burden. Profitable option intensive firms in the late 1990's faced in effect lower US corporate income tax rates due to their extensive employee stock option deductions and resulting net operating loss carry-forwards. It is possible that these firms had more incentive to recognize income domestically than their non-option intensive corporate peers. Using a sample of the largest US firms comprising the NASDAQ-100 index on May 31, 2001, this study found evidence of higher US profitability among NASDAQ-100 multinational firms with the largest deductions resulting from the exercise of options by their employees during the 1997 - 2000 fiscal years suggesting that these firms where more likely to recognize or even generate income within US borders when facing effectively lower US corporate income tax rates. Such an observation has potential public policy implications and contributes to the literature on tax motivated income shifting behavior.

Submitted by Filipe dos Santos (fsantos@pucsp.br) on 2017-07-11T12:41:17Z No. of bitstreams: 1 Eliane Fatima Morais de Paula.pdf: 1453971 bytes, checksum: 6b52fea814ab9ac1cfde6c54daa5b745 (MD5) / Made available in DSpace on 2017-07-11T12:41:18Z (GMT). No. of bitstreams: 1 Eliane Fatima Morais de Paula.pdf: 1453971 bytes, checksum: 6b52fea814ab9ac1cfde6c54daa5b745 (MD5) Previous issue date: 2017-06-22 / The research aims to analyze two issues related to the transfer pricing in intercompany loans. The first purpose aims to identify evidences about the income shifting practice in the operations of loans based on EDI (Foreign Direct Investment) flows before and after the new Fiscal Law n° 12.715/2012. The current legislation has removed the benefit of safe harbor (upon Brazil Central Bank registration), requiring companies to submit their interest received or paid of loans at the transfer pricing methodology. The premise is that the release to compare the interest charged or received by intercompany, granted in previous legislation, favored the indiscriminate use of unfair rates among the business group. For the second proposal, it examines the setting of remuneration established in legal instruction and its relationship with the Emerging Markets Bond Index – Embi+, the proposal is to use this index as a proxy of remuneration to updated the yield return on date of contracting loans. The evidence of income shifting using the EDI’s flow (specific to related companies) tested by structural stability of Chow is not proven. Related to the second proposal, there is a very strong correlation between the yield return offered by public sovereigns issued in US dollars and the Embi index (years 1997 to 2016). The research also points out that outdated parameters defined by government did not affect the taxable base, if keeping beneficial to the taxpayer in borrowing, however unfavorable for loans granted / Esta pesquisa analisa dois temas pertinentes ao preço de transferência nas operações de mútuos. Como primeiro objetivo, pretende identificar indícios sobre a prática de income shifting nas operações de empréstimos com base no fluxo de EDI (Investimento Estrangeiro Direto) anterior e posterior à l n° 12.715/2012. A vigente legislação removeu o benefício do safe harbour (mediante registro do contrato no Banco Central), estabelecendo que todas deveriam submeter seus juros de empréstimos adquiridos ou cobrados à metodologia de cálculo. A premissa admitida é que a dispensa da comparação dos juros praticados pelas intercompanhias, concedida na legislação anterior, favorecia o uso indiscriminado de taxas abusivas com o objetivo de reduzir a carga tributária do grupo empresarial. Como segundo objetivo, examina o parâmetro de remuneração estabelecido na instrução legal e sua relação com o índice Embi+. A proposta é utilizar esse índice como proxy indexador à remuneração parâmetro do regulamento legal, decorrente da ausência de emissões soberanas atualizadas à data de contratação (novação ou repactuação) dos empréstimos. O indício de income shifting, considerando os fluxos de EDI (específicos para empresas vinculadas), por meio do teste de Chow, não é comprovado. Com relação ao segundo objetivo, verifica-se uma correlação muito forte entre as taxas de retorno (yield return) oferecidas pelos títulos públicos soberanos emitidos em dólar e o índice Embi+ (período de 1997 a 2016). Esta pesquisa destaca, ainda, que a desatualização das taxas parâmetros não afetou a base tributável dos contribuintes, que se manteve benéfica nos empréstimos tomados, porém desfavorável nos empréstimos concedidos

This dissertation provides three models pertaining expropriation and production decisions in the natural resources industries. The first two chapters are intertwined: in these, the government relies on two tools to capture the rents from privately-owned Natural Resources Companies, a corporate income tax and the possibility of expropriating the assets. A real options model is used to assess the effect that progressiveness in taxation has on the political risk of a natural resources project. In the first chapter, we discover that under certain conditions for the underlying commodity: low prices or forward curves in backwardation - the introduction of an equivalent but more progressive tax regime decreases the political risk and the corresponding deadweight loss. However, when initial prices are too high or initial futures curves are in strong contango, the introduction of a progressive tax regime ends up significantly increasing the risks. In the second chapter, producers are able to foresee the risks of expropriation and thus change their behaviour: the results are mixed. As in the previous case, with lower prices and less tendency to expropriate, the scheduling of production allows for gains in the value of the operation for the firms. More progressive tax regimes end up being detrimental to the government, which in some cases can even result in a non-stable equilibrium with the producers and governments trying to outguess each other and end up cycling both the production and the expropriation probability in order to maximise their respective expected value for the operations. This has a detrimental effect for all parties involved. Finally, the third chapter introduces the possibility that a government levies royalties over sales. The development of home-based institutions is going to affect the amount of tax evasion that a government will face and thus determine the appropriate combination of taxes that it must choose. We find that when the host country's tax and technological capacity are too low, a state has no incentives to improve its institutions and becomes trapped in a low tax, low revenue situation: what we call a Royalty Trap. We end up by showing the evolution of tax capture in Chile during the 20th century to illustrate how these concepts might be applied.