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
| Identifer | oai:union.ndltd.org:UTEXAS/oai:repositories.lib.utexas.edu:2152/21764 |
| Date | 25 October 2013 |
| Creators | De Simone, Lisa Nicole |
| Source Sets | University of Texas |
| Language | en_US |
| Detected Language | English |
| Format | application/pdf |
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