The Effect of Tax Rate Change on Inversions by Multinational Enterprises in the United States

doi:10.21203/rs.3.rs-3567526/v1

Download PDF

Research Article

The Effect of Tax Rate Change on Inversions by Multinational Enterprises in the United States

https://doi.org/10.21203/rs.3.rs-3567526/v1

This work is licensed under a CC BY 4.0 License

Version 1

posted

You are reading this latest preprint version

Inversions are major international tax issues for tax administrators and multinational enterprises (MNEs) as MNEs shift profit from high-tax to low-tax countries to minimize their global effective tax rate. These inversions determine the residency and consequent withholding tax (WHT) liabilities and reporting of income of associated enterprises in different tax jurisdictions. This study addressed five research questions with the first examining the difference in the reporting of WHT and the next four examined the difference in the reporting of total U.S.-Source income as well as its components including dividends, interest, and rent/royalties in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction. Analyzing data from the U.S. Internal Revenue Service suggest that after the updated legislation, the WHT collections increases on payment to non-residents in respect to all countries other than tax havens. Also, there were significant increases in total U.S.-Source Income as well as the dividends and rent/royalties components but a significant decrease in the interest component in respect of WHT collections on payment to non-residents for all countries other than tax havens. Alternatively, there was a significant increase in the interest component in respect of WHT collections on payment to non-residents for tax havens. These results do not support shifting of residency back to the US but increased residency and transactions’ value to countries other than tax havens as well as the shifting of the value of loans from countries other than tax havens to tax havens.

International tax

Inversions

Withholding tax

US Tax rate changes

Inversions are major international tax issues for both tax administrations and multinational enterprises (MNEs). Research done by international consulting firms, government agencies, and independent researchers has reflected countries’ significant tax revenue losses and tax base erosion due to inversions, as MNEs shift profit from high-tax to low-tax countries to minimize their global effective tax rate. These inversions are relevant for both tax administrators and taxpayers since they determine the Withholding tax liabilities and reporting of income of associated enterprises in different tax jurisdictions.

MNEs use inversions to shift their worldwide profit and consequent tax burden from their high-tax home base to low or no-tax countries (Markle & Shackelford, 2012). Clausing, Miller, and Mintz (2020) indicated that profit shifting as reflected in 2017 country by country reporting (CBCR) showed accumulated earnings offshore of $4.4 trillion, with $2.8 trillion located in Bermuda, the Caymans, Ireland, Jersey, Luxembourg, Netherlands, Puerto Rico, Singapore, and Switzerland.

The general problem is that MNEs shift profit and taxes from the United States using existing tax legislation. The specific problem is despite the tax rate reduction in 2017 legislation, shifting of profit and taxes is still occurring by MNEs. The share of income in tax havens in 2019 (61% of after-tax income; 1.5% of GDP) is identical to the average of the years prior to the law (2013–2017) (Clausing, Miller, and Mintz (2020). This problem has negatively impacted social and economic programs because of reduced collection of tax revenues. Docksai (2013) reflected that governments should be active in investment that contributes to economic growth and job creation as well as facilitate health care, education, infrastructure projects, and social welfare programs with the primary source of finance for the investment being tax revenues. A possible cause of this problem is MNEs’ strategy of complying with the legislation. This study, in which I investigated differences in reporting of WHT, before and after the 2017 U.S. tax rate reduction legislation, solves the problem by identifying either MNEs’ reversal of inversions or engagement in tax management. Therefore, this study informs both economic and strategic management theories that propose changes in tax rate legislation as proposed by economic theory as well as the management strategy of foreign controlled corporations (FCCs) in determining the overall profit of the multinational enterprise as they engage in strategies for allocating their global tax liabilities, as proposed by economic theory and strategic management theory.

The purpose of this causal-comparative study was to compare the reporting of withholding tax (WHT), to investigate differences in total U.S.-source income as well as to investigate differences in the components of U.S.-source income including dividends, interest, and rent/royalties in respect of WHT collections, before and after the 2017 U.S. corporate income tax (CIT) rate reduction.

The research questions and hypotheses guiding my research were as follows:

Research Question 1(RQ1): What is the difference in the reporting of WHT before and after the tax rate reduction in 2017 legislation?

Null Hypothesis (H01): There is no difference in the reporting of WHT before the tax rate change in the legislation when compared to after the update.

H₀1: X₁ – X₂ = 0

Alternative Hypothesis (Ha1): There is a difference in the reporting of WHT before the tax rate change in the legislation when compared to after the update.

H_a1:X₁ – X₂ ≠ 0

I used a Wilcoxon’s signed rank test to compare the data of one group of companies, before and after the tax rate change in the legislation, for testing this first hypothesis.

Research Question 2 (RQ2): What is the difference in the reporting of total U.S.-source income in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction?

Null Hypothesis (H02): There is no difference in the reporting of Total U.S.-Source Income in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction.

H₀2: X₁ – X₂ = 0

Alternative Hypothesis (Ha2): There is a difference in the reporting of Total U.S.-Source Income in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction.

H_a2:X₁ – X₂ ≠ 0

I used a Wilcoxon’s signed rank test to compare the data of one group of companies, before and after the tax rate change in the legislation, for testing this second hypothesis.

Research Question 3 (RQ3): What is the difference in the reporting of the dividends’ component of U.S.-Source Income in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction?

Null Hypothesis (H₀3): There is no difference in the reporting of the dividends’ component of U.S.-Source Income in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction.

H₀3: X₁ – X₂ = 0

Alternative Hypothesis (Ha3): There is a difference in the reporting the dividends’ component of U.S.-Source Income including in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction.

H_a3:X₁ – X₂ ≠ 0

Research Question 4 (RQ4): What is the difference in the reporting of the interest component of U.S.-Source income in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction?

Null Hypothesis (H₀4): There is no difference in the reporting of the interest component of U.S.-Source income in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction.

H₀4: X₁ – X₂ = 0

Alternative Hypothesis (Ha4): There is a difference in the reporting the interest component of U.S.-Source income including in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction.

H_a4:X₁ – X₂ ≠ 0

Research Question 5 (RQ5): What is the difference in the reporting of the rent/royalties component of U.S.-Source income in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction?

Null Hypothesis (H₀5): There is no difference in the reporting of the rent/royalties component of U.S.-Source income in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction.

H₀5: X₁ – X₂ = 0

Alternative Hypothesis (Ha5): There is a difference in the reporting the rent/royalties component of U.S.-Source income including in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction.

H_a5:X₁ – X₂ ≠ 0

To the best of my knowledge, this study was the first to measure differences on MNEs reporting of WHT and to investigate differences in the Total U.S.-Source Income as well as the components of U.S.-Source Income including dividends, interest, and rent/royalties in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction to the U.S. Treasury using a Wilcoxon’s signed rank test.

Inversions facilitate shifting of MNEs worldwide profit and consequent tax burden from their high-tax home base to low or no-tax countries. An inversion is a transaction in which a US-based multinational company merges with a smaller foreign company and then establishes its residence in the foreign company’s country, significantly reducing its taxes without changing the location of any real business activities (International Monetary Fund (2019).

The theories that I tested for my study are economic theory and strategic management theory. Economic theory proposes that tax rates due to the status of legislation are relevant in determining the overall profit of the firm sine the tax rates influence the reporting of WHT and profit. The other theory, strategic management theory indicates that management strategy is relevant in determining the overall profit of the multinational enterprise (MNEs) as they engage in strategies for allocating their global tax liabilities since the status of legislation establishes specific tax rates that influences the reporting of WHT and operating profit. These theories affect the operations of tax administrations and MNEs and present a view of inversions that can be used to explain, describe, predict, and control having specific tax legislation. Consequently, there was a need to assess the effect of tax rate change legislation on the reporting of WHT and operating profit in the United States, which is the subject of my research in ensuring compliance with tax legislation.

This study involved examining the effect of the status of tax rate legislation on the reporting of WHT and Total U.S.-Source Income as well as the components of U.S.-Source Income including dividends, interest, and rent/royalties. As such, I adopted a quantitative approach with the ex-post facto or causal-comparative research design for investigating differences pre- and post implementation. Since the IRS has already implemented the independent variable in the proposed study, this existing variable could not be manipulated; the casual comparative research design is the most suitable design for the study.

The purpose of this causal-comparative study was to compare the reporting of WHT and profit, before and after change in legislation. I used a Wilcoxon’s signed rank test to compare the data of one group of companies, before and after the updated tax rate legislation, for testing the hypotheses. Therefore, my study included analyzing existing data relating to the effect of the tax rate legislation on the reporting of WHT and U.S.-Source Income.

Several previous researchers have used the quantitative approach with the ex-post facto design. The United States General Accounting Office (1995) compiled a report in response to requests for data on the TP issues relating to tax compliance of FCCs and USCCs using tax data for 1990 and 1991. The Department of the Treasury (2007) report resulted from studies on earnings-stripping and transfer pricing. The earnings stripping study focused on comparing the profitability of FCCs to USCCs using data from income tax returns filed with the U.S. IRS (Department of the Treasury, 2007). Department of the Treasury’s second study focused on transfer pricing, using tax returns data, and included a review of Section 482 of the U.S. IRC. Additionally, the United States Government Accountability Office (GAO) (2008) accessed data from the IRS’s SOI database containing samples of tax returns for several years. Additionally, McDonald (2008) researched U.S. tax return data, using a regression model, in determining whether 12 operating profit shifting occurred with controlled foreign corporations through transfer pricing. McDonald’s study extended work done by Grubert (2003) in respect of using tax return data for determining operating profit shifting. Further, Avi-Yonah (2007) examined U.S. TP legislation in concluding that the United States should continue to apply the ALS in taxation for determining transaction values between related parties. The Joint Committee on Taxation report submitted to the House Committee on Ways and Means (2010) noted that this document dealt with business restructuring, legislation, case studies of U.S. MNEs, and the way the structure of these MNEs utilize the IRC in determining their U.S. tax liability. Additionally, Klassen, Lang, and Wolfson (1993) studied operating profit shifting by U.S. MNEs in response to global changes in tax rates using samples of both U.S. and non-U.S. based operations. The inquiry required performing regression analysis on existing data from financial statements extracted from Compustat for the period 1984–1990. Finally, Grubert (2012) extracted data from a sample of income tax files relating to U.S.-based MNEs including information contained in the tax return Form 1120 and Form 5470 that has financial statements’ data. Grubert (2012) used regression analysis on the data in concluding that U.S.-foreign tax rate differentials affected the location of the foreign portion of global profits for U.S.-based MNEs. Therefore, my research is consistent with previous studies that applied the ex-post facto research approach of examining existing data and noting the effect on profit reporting.

In my literature review, I organized the literature into five sections. In the first section, I discuss the theory of inversions. In the second section, I emphasize that inversions and its effect on WHT remains the significant international tax issue facing both tax administrations and MNEs today and in the future. The next section includes information on the independent variable of the existing legislative framework. In the fourth section, I examine tax havens. The last section includes literature relating to the digital economy and BEPS.

2.1 Misalignment of Profits and Income Shifting

MNEs are engaged in shifting of worldwide profit and consequent tax burden from their high-tax home base to low or no-tax countries. Garcia-Bernardo, Janský and Tørsløv, (2021) noted that US headquartered MNCs engage in profit shifting by locating major economic activities in tax havens including Bermuda, Ireland, The Netherlands, Switzerland, Singapore, Hong Kong, Cyprus, and UK Caribbean, where they report profits to minimize taxation. The estimated effective tax rates (ETRs), calculated as ratios of taxes and gross income reflected that tax havens have low ETRs, high shares of profits, significant lower shares of employees and other indicators of economic activity as well as misaligned profits (Garcia-Bernardo et al., 2021). Klassen, Lang, Wolfson, (1993) studied income shifting by US MNEs in response to global changes in tax rates indicating that US based MNEs shifted income out of the US when the tax rates of selected countries were lower relative to US tax rates. Grubert, (2012) noted that since 1996 there has been a significant increase in the worldwide income of US MNEs that is declared outside of the US concluding that US-foreign tax rate differentials affected the location of the foreign portion for global income and profits of US based MNEs. Harris, Morck, Slemrod, and Yeung (1991), noted that generally, MNEs engage in income shifting based on the relative tax rates between the US and other countries. Grubert and Mutti, (1991) indicate that taxes and tariffs affect MNEs operations. Income as well as FDI is shifted to low tax countries. Therefore US based MNEs reflected both lower US reported profit margins and higher foreign profit margins when their ETRs were lower relative to US tax rates.

2.2 Inversions

Inversions facilitate shifting of MNEs worldwide profit and consequent tax burden from their high-tax home base to low or no-tax countries. An inversion is a transaction in which a US-based multinational company merges with a smaller foreign company and then establishes its residence in the foreign company’s country (International Monetary Fund (2019). As a foreign resident, the company can sometimes significantly reduce its taxes without changing the location of any real business activities (Kopp, Leigh, Mursula & Tambunlertchai, (2019). Consequently, significant revenue losses are associated with inversion abuse by MNEs.

Further research by independent researchers on inversions complemented and supported those by the institutional studies. Atkinson and Hanson (2020) indicated that between 1982 and 2016 US based MNEs were involved in corporate inversions where their corporate head offices were relocating outside of the US due to tax advantages, primarily including lower corporate tax rates. Webber (2011) noted that in the decade to the early 2000s, several large US MNEs transferred their head offices, through paper transactions, out of the US in reducing their global tax liabilities primarily due to the high US tax rates. Webber (2011) supported research done by Desai and Hines (2002) as well as Seida and Wempe (2004) where firms were involved in income shifting out of the US. Webber (2011) noted work done by Kane and Rock (2007) who examined the criteria for determining the location of corporate head offices including the place of incorporation (POI) as well as the substantive Real Seat (RS) or central management and control consistent with the location of major decisions, assets and employees. As a result, income shifting through corporate inversions, effectively reduced the tax collections to the US Treasury. Consequently, there is a need to assess the effectiveness of tax legislation on income reporting, which was the subject of my research.

MNEs shift profit from high tax to low tax countries in minimizing their global effective tax rate. Roin (2017) noted that in 2015 there were significant inversion transactions among US companies where US companies change their domicile to a low tax or tax haven country for reducing their global tax liabilities. Roin (2017) examines the effort required by the US in reducing the extent of inversions so that it could increase taxes on US source income noting the source and residence bases for taxing international income. Countries from low tax countries and tax havens can gain by providing residency status to corporations since for the US the place of incorporation determines residence resulting in minimized US taxes by shifting income to its related foreign party not involved in US source income, through interest and royalty payments that may escape WHT using the tax treaties (Roin, 2017). Therefore, taxpayers will adapt their business structure to reduce their global tax liability as reflected in inversion practices where high tax domestic companies are replaced with low tax foreign countries.

The 2017 TCJA was intended to reverse this inversion trend so that MNEs head offices would relocate back to the US. Before the TCJA, the CIT rate encouraged profit shifting and inversion as companies moved their HQ to foreign countries in avoiding US taxes. In 2017 Congress passed TCJA with the CIT rate falling from 35 to 21% (Watson and McBride, 2021). Watson and McBride, (2021) further noted that the economic literature reflected that capital investment is related to corporate taxation with the change in 2017 bringing rates in line with OECD countries as well as boosting incentives to invest in US. However, the Bureau of Economic Analysis (BEA) US FDI statistics reflected that this reversal was not widespread in the year following the 2017 TCJA. Watson and McBride (2021) noted the proposal by President Joe Biden to increase the corporate income tax rate from 21–28% repealing the changes to the corporate tax made by the TCJA in late 2017 but concluded that increasing the US CIT rate would reverse the effects of the 2017 TCJA by encouraging profit shifting abroad and should be avoided.

2.3 The Significance of Inversions on Reporting of Income and WHT

US source income comprises that income produced from property located in the US or services performed in the US and include interest, dividends, branch profit, and royalties. Department of the Treasury (2021) noted that a foreign person is subject to US tax on its US source income at a 30% rate that is reduced where a tax treaty exists between the residence and source country, as well as the payer withholds the tax based on the gross amount of payment. Payments are reported on form 1042-S and files a tax return on form 1042 (Department of the Treasury, 2021). As a result, data is available to assess the effectiveness of tax legislation on income and WHT reporting, which was the subject of my research.

Additional researchers examined the effect of inversions on taxation. OECD (2014) noted that there are domestic tax rules for taxing non-residents on their inbound investments; however, there may be difficulties in knowing the non-resident’s expenses incurred in producing that income. There are certain categories of passive income such as interest, dividends, and technical services accruing to non-residents where a WHT is applied on the gross figure where there are no deductions allowed and these rates are usually lower than the CIT rate (OECD, 2014). Campbell (2013) examined the issues relating to taxation of non-resident activities in the source state where a bilateral tax treaty exists restricting the degree of taxation of non residents by the source state. Income types include passive income such as interest, dividends, and royalties paid by an entity in the source state and taxed on a gross basis (Campbell, 2013).

Further, Li (2013) noted that the taxation of non-residents on their business profit are generally taxed on a net basis after deducting expenses associated with a permanent establishment (PE); However, passive income is subject to WHT on a gross basis and the withholding agent claiming a deduction for the payment.

2.4 Legislation

The United States is updating its legislation as they react to both internal and external forces on the effect of tax legislation on revenue reporting. Kopp et al (2019) noted that the Tax Cuts and Jobs Act (TCJA) effective December 2017 reduced the CIT rate from 35–21% with the view of encouraging businesses to repatriate foreign earnings and invest into the US. Herzfeld (2021) examined the effect of the TCJA on MNC’s trade and investment, since the pre-TCJA facilitated investment in low taxed foreign countries as well as general tax base erosion, with the intention of reducing the shifting of investments from the US. However, the change in the international tax area is more challenging than it appears with the large gap between the anticipated benefit of the TCJA and reality revealing that incremental changes are better than major ones and the need for details in the revised law as well as the interaction between pre and post TCJA (Herzfeld, 2021). Consequently, there was a need to examine the effect of updated tax legislation on income reporting by MNEs.

Clausing, Miller, and Mintz (2020) examined the effect of the TCJA on profit shifting as well as the effects of the global minimum tax (GILTI) on the location of taxable profits; revenue losses from profit shifting may exceed $100 billion per year by the time of the legislation. The TCJA consisted of reduced CIT from 35–21% and introduced three new international provisions (GILTI, FDII, and BEAT), that changed the tax treatment of MNCs. Profit shifting as reflected in 2017 showed accumulated earnings offshore of $4.4 trillion, with $2.8 trillion located in Bermuda, the Caymans, Ireland, Jersey, Luxembourg, Netherlands, Puerto Rico, Singapore, and Switzerland (Clausing et al., 2020). Clausing et al., (2020) concluded that the pattern of US MNC’s direct investment income before and after TCJA reflects minor change in the share of income in tax havens due to the change in the law; The share of income in havens in 2019 (61% of after-tax income; 1.5% of GDP) is identical to the average of the years prior to the law (2013–2017). Due to the complexity of the tax law changes and the interactions among them, as well as the moving target of foreign tax policies and multinational company tax planning, precise conclusions about the impact of the TCJA are difficult.

2.5 Tax Havens

Cobham and Janský (2017) noted that approximately 25% of the global profit of US MNEs is shifted to countries other than where the economic activity takes place, including tax havens, such as the Netherlands, Ireland, Bermuda, Luxembourg, Singapore, and Switzerland. Shaxson (2019) noted that the 2008 financial crisis changed the way tax havens are viewed since these tax havens cost $600 billion each year in lost CIT as well as in 2017 US Fortune 500 companies held almost $2.6 trillion offshore in major tax havens including BVI, Bermuda and Cayman Islands.

Gravelle, (2009) noted that the federal government loses substantial CIT through income and profit shifting into low and zero tax countries or tax havens. Additional characteristics of these tax havens include limited information sharing and transparency, bank secrecy, and little economic activity. These tax havens are located globally as follows:

Caribbean: Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, British Virgin Islands, Cayman Islands, Dominica, Grenada, Montserrat, Netherland Antilles, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Turks and Caicos, US Virgin Islands

Central America: Belize, Costa Rica, Panama

Coast of East Asia: Hong Kong, Macau, Singapore

Europe/Mediterranean: Andorra, Channel Islands (Guernsey and Jersey), Cyprus, Gibraltar, Isle of man, Ireland, Liechtenstein, Luxembourg, Malta, Monaco, San Marino, Switzerland

Indian Ocean: Maldives, Mauritius, Seychelles

Middle East: Bahrain, Jordan, Lebanon

North Atlantic: Bermuda

Pacific, South Pacific: Cook Islands, Marshall Islands, Samoa, Nauru, Niue, Tonga, Vanatu

West Africa: Liberia

Damgaard, Elkjaer, and Johannesen (2018) noted that MNEs invested $12 trillion each year, representing 40% of global FDI, into shell companies where there is no real activity with investments in the Netherlands, Luxembourg, Hong Kong SAR, the British Virgin Islands, Bermuda, the Cayman Islands, Ireland, and Singapore. These tax havens are host to 85% of global investment in special purpose entities whose traits include legal registration, foreign ultimate ownership, as well as few or no employees, production nor physical presence with holding activities or group financing as their major business. This investment represents up to 90% of FDI for emerging economies and up to 60% for advanced economies such as the US (Damgaard et al., 2018).

O’Reilly, Parra Ramirez and Stemmer (2019) definition of an offshore financial centre (OFC) include the offshore location of the major financial activity, transactions emanating elsewhere, and the institutions controlled by non-residents. These OFCs primarily engage in business with non-residents, having external assets and liabilities out of proportion to servicing the domestic economy, and zero to low taxation. The complete list of countries based on the IMF’s definition include: Andorra; Anguilla; Antigua and Barbuda; Aruba; Bahamas; Bahrain; Barbados; Belize; Bermuda; British Virgin Islands; Cayman Islands; Cook Islands; Costa Rica; Netherlands Antilles/Curaçao; Cyprus; Dominica; Gibraltar; Grenada; Guatemala; Guernsey; Hong Kong, China; Isle of Man; Jersey; Lebanon; Liechtenstein; Luxembourg; Macau, China; Malaysia; Malta; Marshall Islands; Mauritius; Monaco; Montserrat; Nauru; Niue; Palau; Panama; Saint Kitts and Nevis; Saint Lucia; Saint Vincent and the Grenadines; American Samoa; San Marino; Seychelles; Singapore; Switzerland; Turks and Caicos Islands; United Arab Emirates; Uruguay; and Vanuatu.

Quinn, Cramer, MacCarthy and Morrissey, (2021) indicated that Ireland has double tax treaties with more than 70 Countries and its economic policy is geared towards international investment. Also, Ireland has a 12.5% CIT rate applicable to a resident of Ireland as well as a 25% to non-residents. However, Irish WHT for payments of passive income such as dividends and interest, to a non-resident in a tax treaty country is exempt from WHT.

2.6 Digital Economy

Baez and Brauner (2015) noted that their research relates to OECD’s work on Action 1 of BEPS and is focused on the WHT in respect of international taxes and the digital economy. The digital economy presents several challenges to the international tax regime since the physical presence need, such as permanent establishment (PE), by tax administrations are obsolete. The PE represented an equitable negotiation between source and residence principles of taxation; however, this is no longer viewed as an equitable balance. There is tax base erosion of source countries since the income obtained by the non-residents may be deductions against the tax base of source countries. Digital transactions, subject to WHT, can be defined as those involving goods and services carried out through computer networks using internet platform. The authors concluded that tax deductible payments would be subject to WHT where the base erosion effect is matched with the payment.

Hongler and Pistone (2015) examined issues relating to introducing a PE nexus based on the digital presence. The theoretical framework for this research included both sourcing and benefit theories. There is a shifting away from a PE nexus of physical presence to value creation within the digital economy. Value is created, based on sourcing theory, in both the supply and demand side of an enterprise. Also value creation occurs due to economic allegiance according to the benefit theory.

Tandon (2018) noted that the taxation of MNEs is governed by both domestic and international tax rules with source countries taxing passive income on a gross basis and active business income taxed where there is economic activity or place of residence. This article focuses on the misalignment between economic presence and value creation. Digitalized business is characterized by user participation as well as the generation and use of user data with a common feature on reliance on intangibles. Data is a basis for value creation and therefore a criterion for economic nexus; however greater expenses may be allocated in the source country reducing taxable profit.

2.7 BEPS

OECD (2013) noted the global economy became more integrated in recent years with MNEs representing a substantial portion of global GDP. These changes facilitated opportunities for MNEs to minimize their global tax liabilities and create chances for BEPS. The OECD was requested through the G20 finance ministers to develop an action plan to address BEPS with the right to tax aligned to economic activity. Bilateral treaties have failed to prevent double non taxation due to third countries in the bilateral framework using conduit or shell companies with minimal office, assets, and employees.

OECD (2014) indicated that in 2013 the G20 countries and OECD, in addressing BEPS, adopted a 15 point action plan. The action plan assures that taxation of profit occurs where value is created as well as where economic activities that generate the profit are done. International transactions address inbound investments of non-residents as well as outbound investments of residents. Therefore, defining residence is critical and include place of incorporation or effective management. Both inbound and outbound investments apply a mixture of the worldwide and the territorial tax systems. In respect of the taxation of inbound investments of non-residents, tax is imposed on income arising from domestic sources. The source concept is parallel to the PE concept in tax treaties where the business income is taxed on a net basis. However, there may be challenges in determining the expenses of the non-resident so passive income such as interest, royalties, and dividends derived by non-residents are taxed at gross rates that are usually lower than corporate tax rates. Researchers identified economic allegiance in designing the international tax framework and focused on the factors of source of the wealth as well as the residence of the consumers of the wealth. Locating functions, assets, and risks in certain jurisdictions allow for allocating income to those countries.

Ault, Schon, and Shay, (2014) noted 15 action items associated with BEPS in the following categories: digital economy; prevention of double non taxation; alignment of economic activity and taxation; tax transparency and dispute resolution; efficient and effective implementation. The BEPS action plan focuses on major challenges in the international tax arena. Income is divided between source and residence countries where the source country taxes business income on a net basis and WHT on passive income. However, contemporary planning by MNEs are now indicating the use of intermediaries in tax favourable countries.

Table 1. Summary of Results of Wilcoxon's Signed Rank Test for Paired Samples

Countries

Average WHT

collections 201617 compared to 201819

U.S.-Source

Income (Total) in respect of WHT

collections 201617 compared to 201819

U.S.-Source Income (Dividend) in respect of WHT collections 201617 compared to 201819

U.S.-Source Income (Interest) in respect of WHT

collections 201617

compared to 201819

U.S.-Source Income (Rent/

Royalties) in respect of WHT collections 201617 compared to 201819

Tax

Havens

Significant

Increase

No Significant

Increase

Significant Decrease

Significant Increase

No Significant Decrease

Countries Other than Tax Havens

Significant

Increase

Significant Increase

Significant Decrease

Significant

Increase

Table 2. Results of Wilcoxon's Signed Rank Test for Paired Samples of Average WHT Collections.

Tax Havens

Status of legislation	Median	W	P value
Average WHT collections 201617	98531	43.00	0.120
Average WHT collections 201819	110818	43.00	0.120

Seventeen participants were analyzed to understand the increase in the reporting of WHT collections in the US for payments to tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate. A Wilcoxon signed-rank test determined that there was not a statistically significant median Increase ($12287) in the reporting of WHT collections in the US for payments to tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate, W = 43.00, p =0.120 (Table 2).

Table 3. Results of Wilcoxon's Signed Rank Test for Paired Samples of U.S.-Source Income (Total) in respect of WHT Collections.

Tax Havens

Status of legislation

Median

P value

U.S.-Source

Income (Total) in respect of WHT

collections 201617

U.S.-Source

Income (Total) in respect of WHT

collections 201819

1.461e+6

1.579e+6

0.225

Seventeen participants were analysed to understand the increase in the reporting of U.S.-Source Income (Total) in respect of WHT collections in the US for payments to tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate. A Wilcoxon signed-rank test determined that there was not a statistically significant median increase ($0.118e+6) in the reporting of U.S.-Source Income (Total) in respect of WHT collections in the US for payments to tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate, W = 50, p =.225 (Table 3).

Table 4. Results of Wilcoxon's Signed Rank Test for Paired Samples of U.S.-Source Income (Dividend) in respect of WHT collections.

Tax Havens

Status of legislation

Median

P-value

U.S.-Source Income (Dividend) in respect of WHT collections 201617

U.S.-Source Income (Dividend) in respect of WHT collections 201819

285771

281722

0.035

Seventeen participants were analysed to understand the decrease in the reporting of U.S.-Source Income (Dividend) in respect of WHT collections in the US for payments to tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate. A Wilcoxon signed-rank test determined that there was a statistically significant median decrease ($4049) in the reporting of U.S.-Source Income (Dividend) in respect WHT collections in the US for payments to tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate, W = 32.00, p =0.035 (Table 4).

Table 5. Results of Wilcoxon's Signed Rank Test for Paired Samples of U.S.-Source Income (Interest) in respect of WHT collections.

Tax Havens

Status of legislation

Median

P-value

U.S.-Source Income (Interest) in respect of WHT

collections 201617

U.S.-Source Income (Interest) in respect of WHT

collections 201819

678714

836046

0.045

Seventeen participants were analysed to understand the increase in the reporting of U.S.-Source Income (Interest) in respect of WHT collections in the US for payments to tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate. A Wilcoxon signed-rank test determined that there was a statistically significant median Increase ($157332) in the reporting of U.S.-Source Income (Interest) in respect WHT collections in the US for payments to tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate, W = 34, p = .045 (Table 5).

Table 6. Results of Wilcoxon's Signed Rank Test for Paired Samples of U.S.-Source Income (Rent/Royalties) in respect of WHT collections.

Tax Havens

Status of legislation

Median

P-value

U.S.-Source Income (Rent/Royalties) in respect of WHT collections 201617

U.S.-Source Income (Rent/Royalties) in respect of WHT collections 201819

19658

19503

0.927

Seventeen participants were analysed to understand the decrease in the reporting of U.S.-Source Income (Rent/Royalties) in respect of WHT collections in the US for payments to tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate. A Wilcoxon signed-rank test determined that there was not a statistically significant median decrease ($155) in the reporting of U.S.-Source Income (Rent/Royalties) in respect of WHT collections in the US for payments to tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate, W = 74, p = .927 (Table 6).

Table 7. Results of Wilcoxon's Signed Rank Test for Paired Samples of Average WHT Collections.

Countries Other than Tax Havens

Status of legislation

Median

P-value

Average WHT

collections 201617

15147

348

<0.001

Average WHT

collections 201819

17096

348

<0.001

Fifty three participants were analysed to understand the Increase in the reporting of WHT collections in the US for payments to all countries other than tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate. A Wilcoxon signed-rank test determined that there was a statistically significant median increase ($1949) in the reporting of WHT collections in the US for payments to countries other than tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate, W = 348, p <.001(Table 7).

Table 8. Results of Wilcoxon's Signed Rank Test for Paired Samples of U.S.-Source

Income (Total) in respect of WHT collections.

Countries Other than Tax Havens

Status of legislation

Median

P-value

U.S.-Source

Income (Total) in respect of WHT

collections 201617

U.S.-Source

Income (Total) in respect of WHT

collections 201819

460490

539775

324

<0.001

Fifty Three participants were analysed to understand the increase in the reporting of U.S.-Source Income (Total) in respect of WHT collections in the US for payments to all countries other than tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate. A Wilcoxon signed-rank test determined that there was a statistically significant median increase ($79285) in the reporting of U.S.-Source Income (Total) in respect of WHT collections in the US for payments to countries other than tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate, W = 324, p <.001 (Table 8).

Table 9. Results of Wilcoxon's Signed Rank Test for Paired Samples of U.S.-Source Income (Dividend) in respect of WHT collections.

Countries Other than Tax Havens

Status of legislation

Median

P-value

U.S.-Source Income (Dividend) in respect of WHT collections 201617

U.S.-Source Income (Dividend) in respect of WHT collections 201819

79865

108450

309

< .001

Fifty Three participants were analysed to understand the increase in the reporting of U.S.-Source Income (Dividend) in respect of WHT collections in the US for payments to countries other than tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate. A Wilcoxon signed-rank test determined that there was a statistically significant median Increase ($28585 ) in the reporting of WHT collections in the US for payments to countries other than tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate, W = 309.00, p <.001 (Table 9).

Table 10. Results of Wilcoxon's Signed Rank Test for Paired Samples of U.S.-Source Income (Interest) in respect of WHT collections.

Countries Other than Tax Havens

Status of legislation

Median

P-value

U.S.-Source Income (Interest) in respect of WHT

collections 201617

U.S.-Source Income (Interest) in respect of WHT

collections 201819

202271

200838

286

<.001

Fifty three participants were analysed to understand the decrease in the reporting of U.S.-Source Income (Interest) in respect of WHT collections in the US for payments to countries other than tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate. A Wilcoxon signed-rank test determined that there was a statistically significant median decrease ($1433) in the reporting U.S.-Source Income (Interest) in respect of WHT collections in the US for payments to countries other than tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate, W = 286, p < .001 (Table 10).

Table 11. Results of Wilcoxon's Signed Rank Test for Paired Samples of U.S.-Source Income (Rent/Royalties) in respect of WHT collections.

Countries Other than Tax Havens

Status of legislation

Median

P-value

U.S.-Source Income (Rent/Royalties) in respect of WHT collections 201617

U.S.-Source Income (Rent/Royalties) in respect of WHT collections 201819

17079

39183

321

< .001

Fifty Three participants were analysed to understand the increase in the reporting of U.S.-Source Income (Rent/Royalties) in respect of WHT collections in the US for payments to all countries other than tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate. A Wilcoxon signed-rank test determined that there was a statistically significant median increase ($ 22104) in the reporting of U.S.-Source Income (Rent/Royalties) in respect of WHT collections in the US for payments to countries other than tax havens before the reduction in CIT rate when compared to after the reduction in CIT rate, W = 321, p <.001 (Table 11).

The purpose of this causal-comparative study was to compare the reporting of WHT, to investigate differences in total U.S.-Source Income as well as to investigate differences in the components of U.S.-Source Income including Dividends, Interest, and rent/Royalties in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction.

The independent variable, the status of the tax legislation, was defined as the status of the law that ensures the reporting of WHT and profit relating to multinational enterprises’ (MNEs) transactions and deters the avoidance of taxes relating to those transactions. The dependent variable, the reporting of WHT and Total U.S.-Source Income as well as the components of U.S.-Source Income including Dividends, Interest, and rent/Royalties in respect of WHT collections, was defined as the result of MNEs engagement in strategic tax management that is associated with the transactions of MNEs.

In this section I explain the steps for carrying out my research, as well as showing the data and reason for choosing this approach, that will address my research questions.

4.1 Research Design and Rationale

The causal comparative or ex-post facto design that begins with a specific effect and seeks the experimental factors that gave rise to the effect (Lord, 1973). Consequently, quantitative research designs exist for testing the comparison and relationship between variables. I examined differences in the reporting of WHT and total U.S.-Source Income as well as differences in the components of U.S.-Source Income including Dividends, Interest, and rent/Royalties in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction using numerical data that will be measured and counted, as well as tested the relationship between the variables; therefore, I used quantitative research design for my research.

Salkkind (2010) commented that in causal-comparative research design it is necessary to gather as much demographic data as possible and used inferential statistics in demonstrating that a relationship exists between the dependent and independent variables. Therefore, there is an uncertainty of the inclusion of the causative element since the cause of the outcome may result from a combination and interaction of factors as against one single factor. However, despite the weaknesses, the causal-comparative design is important in comprehending the nature of phenomena.

4.2 Population

In my study, the population comprises the FCCs, a category of MNEs that filed tax returns as well as the US payer who is required to report payments subject to Chap. 3 withholding on Form 1042-S and to file a tax return on Form 1042 with the U.S. IRS for 2016, 2017, 2018, and 2019. The U.S. IRS receives income tax returns resulting in a stratified probability sample used in compiling statistics for SOI research (SOI Tax Stats - Statistical Methodology). These statistics reflect data that are present in the income tax returns before any changes due to audit or through the filing of an amended return (SOI, n.d.). During the tax returns processing phase, the income tax returns are stratified based on the type of return, industry, economic size, and other criteria from which samples are collected using fixed sample selection rates (SOI, n.d.). Included in the category of income tax returns are FCCs. A taxpayer identification number (TIN), associated with a random number for sample selection and processing for the study, identifies the income tax returns. The IRS selected one year’s sample, with TINs that are consistently selected for later years, resulting in a longitudinal sample design that improves the estimates of change over the years. Sampling rates, applied to each stratum, are weighted based on the ratio of total income tax returns filed in that stratum to the population sample returns for that same stratum such that the higher the rate, the lower the weight (SOI Tax Stats - Statistical Methodology).

4.3 Sampling and Sampling Procedures

Statistics, including using a Wilcoxon signed-rank test to compare the data of companies, before and after the updated tax regulations, derives the population’s parameters in addressing the study’s questions and hypotheses. Next, I defined the sampling units or unit of analysis in my study’s population comprising FCCs, a category of MNEs that filed tax returns as well as the US payer who is required to report payments subject to Chap. 3 withholding on Form 1042-S and to file a tax return on Form 1042 with the U.S. IRS for 2017 and 2018. Analyzing this existing operational data, using statistics, will result in patterns or themes.

In my study the unit of analysis of the population is the values, reflecting the reporting of WHT and total U.S.-Source Income as well as the components of U.S.-Source Income including Dividends, Interest, and rent/Royalties in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction, of a sample of FCCs that filed tax returns as well as the US payer who is required to report payments subject to Chap. 3 withholding on Form 1042-S and to file a tax return on Form 1042 with the U.S. IRS for 2016, 2017, 2018, and 2019. The sample of tax returns, representing 70 selected countries of foreign owner including 17 relating to tax havens and 53 relating to countries other than tax havens.

The information presented in this section is the interpretation of the findings in the context of the theoretical framework as well as in comparison to the literature review.

5.1 Theoretical Framework

Inversions facilitate shifting of MNEs worldwide profit and consequent tax burden from their high-tax home base to low or no-tax countries. The theories that I tested for my study are economic theory and strategic management theory. Economic theory proposes that tax rates are relevant in determining the overall profit of the firm. Strategic management theory indicates that management strategy is relevant in determining the overall profit of the multinational enterprise as they engage in strategies for allocating their global tax liabilities. The result of the study as reflected by the Wilcoxon signed-rank test confirmed FCCs adherence to the changes in tax rate legislation as proposed by economic theory. This result supports the management strategy of FCCs in determining the overall profit of the multinational enterprise as they engage in strategies for allocating their global tax liabilities, as proposed by Economic theory and strategic management theory.

5.2 The Significance of WHT and Income to Non-Residents

Inversions are major international tax issues for both tax administrations and MNEs. Research done by international consulting firms, government agencies, and independent researchers has reflected countries’ significant tax revenue losses and tax base erosion due to inversions, as MNEs shift profit from high-tax to low-tax countries to minimize their global effective tax rate. These inversions are relevant for both tax administrators and taxpayers since they determine the Withholding tax liabilities and reporting of income of associated enterprises in different tax jurisdictions.

The result of the Wilcoxon signed-rank test confirmed that Inversions are major international tax issues. The status of the legislation may have contributed to differences in the WHT collections. Specifically, my results suggest that after the updated legislation, the WHT collections increases on payment to non-residents in respect to all countries other than tax havens. Therefore, this could mean no shifting of residency back to the US which is the opposite effect to the intention of the law as well as increased residency/transactions’ value to countries other than tax havens. Median increase means that more WHT is being collected by IRS for payments to non-residents; the middle number has increased; more is being collected from the lower half. However, in the case of tax havens there is no significant median increase suggesting that there is no shifting of residency back to the US. The results affect tax planning by MNEs and confirms no shifting of residency back to the United States opposite to the intention of the law.

The result of the Wilcoxon signed-rank test confirmed that inversions are major international tax issues. The status of the legislation may have contributed to differences in the reporting of U.S.-Source income as well as its components. Generally, my results suggest that after the tax rate reduction, there is mixed reporting of total U.S.-Source income as well as the components of U.S.-Source income including dividends, interest, and rent/royalties in respect of WHT collections, before and after the 2017 U.S. CIT tax rate reduction. Specifically, there were significant increases in total U.S.-Source income as well as dividends and rent/royalties components of U.S.-Source income in respect of WHT collections on payment to non-residents for all countries other than tax havens. This result could mean no shifting of residency back to the US and increased values of shareholding and property in countries other than tax havens. However, there was a significant decrease in the interest component of U.S.-Source Income. This result could mean shifting of residency back to the US and decreased values of loans in countries other than tax havens.

Specifically, there were no significant changes in total U.S.-Source income as well as dividends and rent/royalties components of U.S.-Source income in respect of WHT collections on payment to non-residents for tax havens. However, there was a significant increase in the interest component of U.S.-Source income. This result could mean no shifting of residency back to the US and increased values of loans in tax havens as well as the shifting of the value of loans from countries other than tax havens to tax havens.

5.3 U.S. Legislative Framework

Tax rate requires specific legislation that provides a greater degree of certainty in respect of application on transactions between related parties of MNEs with several studies done on the effect of tax legislation on revenue reporting. U.S. legislation is tax law that is specific in determining the tax rates applied to the related parties of MNEs and the subsequent reporting of operating profit. Researchers noted that there must be a monitoring of tax rules for preventing profit shifting. Despite having tax legislation, MNEs engaged in tax planning by reducing their reported revenues and so there is a need to examine the effect of updated tax rate legislation on operating profit reporting by MNEs.

The result of the Wilcoxon signed-rank test confirmed that there must be a monitoring of tax legislation for preventing profit shifting. The status of the legislation may have contributed to differences in the WHT collections. Specifically, my results suggest that after the updated legislation, the WHT collections increases. Median increase means that more WHT is being collected by IRS for payments; the middle number has increased; more is being collected from the lower half. Could mean no shifting residency back to the US, which is the opposite effect to the intention of the law, by MNEs from countries other than tax havens. Therefore more WHT collection on payment to non-residents. However, in the case of tax havens there is no shifting of residency back to the US. The results affect tax planning by MNEs and disconfirms shifting residency back to the United States.

Atkinson, S. & Hanson, J. (2020). Corporate inversions and FDI in the United States.
Ault, H. J., Schon, W. & Shay, S.E. (2014). Base Erosion and Profit Shifting: A Roadmap for Reform, 68 Bull. Int'l Tax'n 275.
Avi-Yonah, R. S. (2007). The rise and fall of arm’s length: A study in the evolution of U.S. international taxation (U of Michigan Law & Economics, Olin Working Paper No. 07–017; U of Michigan Public Law Working Paper No. 92). http://dx.doi.org/10.2139/ssrn.1017524
Baez, A. & Brauner, Y. (2015). Withholding Taxes in the Service of BEPS Action 1: Address the Tax Challenges of the Digital Economy.
Bao, G. (2015). What theories are needed for strategic management? Nankai Business Review International, 6(4), 433–454. Retrieved from http://search.proquest.com.ezp.waldenulibrary.org/docview/1732339404?accounti d = 14872
Clausing, K.A., Miller, T.A. & Mintz, W. (2020). Profit Shifting Before and After the Tax Cuts and Jobs Act 17
Cobham, A. & Janský, P. (2017) (Measuring Misalignment: the Location of US Multinationals’ Economic Activity versus the Location of their Profits Alex Cobham, Petr Janský (2017)
Damgaard, J., Elkjaer, T. and Johannesen, N. (2018). Piercing the Veil. FINANCE & DEVELOPMENT, VOL. 55, NO. 2.
Department of the Treasury. (2007). Report to the congress on earnings stripping, transfer pricing and U.S. income tax treaties. Retrieved from https://www.treasury.gov/resource-center/tax-policy/Documents/Report-Earnings- 129 Stripping-Transfer-Pricing-2007
Department of the Treasury, (2021). Internal Revenue Service Publication 515 Cat. No. 15019L,Withholding of Tax on Nonresident Aliens and Foreign Entities.
Docksai, R. (2013). Five economies that work: Global success stories. The Futurist, 47(2), 32–39. Retrieved from https://www.questia.com/… fiveeconomies-that-work-global-success-stories
Garcia-Bernardo, J., Janský, P. & Tørsløv, T. (2021). Multinational corporations and tax havens: evidence from country-by-country reporting. Int Tax Public Finance 28, 1519–1561 (2021). https://doi.org/10.1007/s10797-020-09639-w
Gravelle, J.G. (2009). Tax havens: international tax avoidance and evasion. National Tax Journal (Vol. 62, Issue 4) Publisher: National Tax Association.
Grubert. H. & Mutti, J. (1991). Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making. The Review of Economics and Statistics, Vol. 73, No. 2, pp. 285–293
Grubert, H. (2012). Foreign taxes and the growing share of U.S. multinational company income abroad: Profit, not sales are being globalized. National Tax Journal, 65(2), 247–282. Retrieved from https://www.ntanet.org/NTJ/65/2/ntjv65n02p247-81-foreign-taxes-growing-share
Harris, David and Morck, Randall K. and Slemrod, Joel B. and Yeung, Bernard Yin, Income Shifting in U.S. Multinational Corporations (December 1991). NBER Working Paper No. w3924, Available at SSRN: https://ssrn.com/abstract=476113
Hongler, P. & Pistone, P. (2015) Working paper. Blueprints for a New PE Nexus to Tax Business Income in the Era of the Digital Economy.
International Monetary Fund (2019), IMF Working Paper, Western Hemisphere and Research Departments)
Jhingan, S. & Yadav, N. (2018). India: Withholding Tax Implications On Payment Of Technical Services Fee
Joint Committee on Taxation. (2010). Present law and background related to possible income shifting and transfer pricing. Retrieved from https://www.jct.gov/publications.html?func=startdown&id=3692
Klassen, K., Lang, M., & Wolfson, M. (1993). Geographic income shifting by multinational corporations in response to tax rate changes. Journal of Accounting Research, 31(3), 141–173.
Kopp, E., Leigh, D.,Mursula, S. & Tambunlertchai, S. (2019). IMF Working Paper Western Hemisphere and Research Departments. U.S. Investment Since the Tax Cuts and Jobs Act of 2017.
Landrum, B., & Garza, G. (2015). Mending fences: Defining the domains and approaches of quantitative and qualitative research. Qualitative Psychology, 2(2), 199–209. 134 http://dx.doi.org/10.1037/qup0000030
Li, J. (2013) Taxation of Non-residents on Business Profits Professor of Tax Law, Osgoode Hall Law School, York University Paper No. 5-A
McDonald, M. (2008). Income shifting from transfer pricing: Further evidence from tax return data. Office of Tax Analysis U.S. Department of the Treasury. Retrieved from https://www.treasury.gov/resource-center/tax-policy/taxanalysis/Documents/TP-2
Markle, K. S., & Shackelford, D. A. (2012). Cross-country comparisons of corporate income taxes. National Tax Journal,65(3), 493–528. doi:10.3386/w16839
Mindy Herzfeld, 2021. "Designing international tax reform: lessons from TCJA," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(5), pages 1163–1187, October.
O’Reilly, P., K. Parra Ramirez & M. A. Stemmer (2019), "Exchange of Information and Bank Deposits in International Financial Centres", OECD Taxation Working Papers, No. 46, OECD Publishing, Paris, https://doi.org/10.1787/025bfebe-en.
OECD (2013), Action Plan on Base Erosion and Profit Shifting, OECD Publishing. http://dx.doi.org/10.1787/9789264202719-en
Organization for Economic Corporation and Development. (2014), Guidance on transfer pricing documentation and country-by-country reporting, OECD/G20 base erosion and profit shifting project, OECD Publishing. doi http://dx.doi.org/10.1787/9789264219236-en
OECD (2014), Addressing the Tax Challenges of the Digital Economy, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing. http://dx.doi.org/10.1787/9789264218789-en
OECD (2017), Neutralising the Effects of Branch Mismatch Arrangements, Action 2: Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264278790-en
Quinn, Cramer, MacCarthy and Morrissey, (2021). Ireland: Ireland As A Location For International Operating Companies.
Rao, S. & Jayaseelan, A. (2006). WITHHOLDING TAX ON PAYMENTS MADE TO NON-RESIDENTS FOR SERVICES RENDERED ABROAD
Riedle, M. (2016). Withholding Tax Effects on the Investment Decision of Multinational Firms, *, University of Tuebingen.
Roin, J. (2017) "Inversions, Related Party Expenditures, and Source Taxation: Changing the Paradigm for the Taxation of Foreign and Foreign-Owned Businesses," 2016 Brigham Young University Law Review 1838.
Shaxson, N. (2019). Tackling Tax Havens: The billions attracted by tax havens do harm to sending and receiving nations alike. FINANCE & DEVELOPMENT
Tandon, S. (2018) India Tax Challenges Arising from Digitalization. Asia-Pacific Tax Bulletin, 2018 (Volume 24), No. 6.
Taxation of Non-Residents, chapter IV in United Nations Department of Social and Economic Affairs, Handbook on Selected Issues in Administration of Double Tax Treaties for Developing Countries, New York: United Nations, 2013, pp. 174–191
Thimmesch, A. B. (2015). Testing the models of tax compliance: The use-tax experiment. Utah L. Rev. 1083. Retrieved from https://ssrn.com/abstract=2572623
United States General Accounting Office. (1995). International taxation: Transfer pricing and information on non-payment of tax. Retrieved from GAO/GGD-95-101.
United States Government Accountability Office. (2008). Tax administration: Comparison of the reported tax liabilities of foreign- and U.S.-controlled corporations, 1998–2005. Retrieved from https://www.gao.gov/assets/280/278562.pdf
Watson, G. & McBride, W. (2021). Evaluating Proposals to Increase the Corporate Tax Rate and Levy a Minimum Tax on Corporate Book Income.
Webber, S. (2011) Escaping the U.S. Tax System: From Corporate Inversions to Re-Domiciling. p. 273.

No competing interests reported.

Download PDF

Version 1

posted

You are reading this latest preprint version

The Effect of Tax Rate Change on Inversions by Multinational Enterprises in the United States

Status:

Version 1

Abstract

1 Introduction

2 Literature Review

2.1 Misalignment of Profits and Income Shifting

2.2 Inversions

2.3 The Significance of Inversions on Reporting of Income and WHT

2.4 Legislation

2.5 Tax Havens

2.6 Digital Economy

2.7 BEPS

3 Results

4 Research Method

4.1 Research Design and Rationale

4.2 Population

4.3 Sampling and Sampling Procedures

5 Interpretation of Findings, Discussion, Conclusions, and Recommendations

5.1 Theoretical Framework

5.2 The Significance of WHT and Income to Non-Residents

5.3 U.S. Legislative Framework

References

Additional Declarations

Status:

Version 1