The effect of taxes on production location

Article Abstract:

The consideration of tax incentives for multinational corporations (MNCs) provides an extension of the body of research on international production location. In particular, this study investigates the link between the ratio of export sales to foreign production sales and measures of the export tax incentive for MNCs between 1984 and 1992. Findings revealed a positive relationship between the proportion of exports against foreign production employed by MNCs to satisfy non-affiliated customers in foreign markets and the level of the tax incentive for exports. Moreover, a positive relationship was also found between exports and tax rates at the country level. This link became stronger after the implementation of the Tax Reform Act of 1986. These prove that the marginal costs of boosting US production are typically lower than the marginal costs of generating alternative tax-planning strategies for dealing with tax burdens.

Industrial sites, Taxation, International aspects, Industrial locations, Industrial location

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Tax-induced earnings management by firms with net operating losses

Article Abstract:

Firms with net operating loss (NOL) carrybacks were offered incentives to shift income for many years after the passage of the Tax Reform Act of 1986 (TRA) to increase their carrybacks and avail of the tax rate spread between the pre- and post-TRA-86 years. An examination of how these firms shifted income across years and why the degree of shifting differs across firms was conducted, factoring in the possible variations across firms of tax and nontax costs and benefits of shifting. Findings showed that from 1986-1991, firms with NOL carrybacks deferred operating income and recognized more nonrecurring losses, which increased tax refunds from pre-1986 high-tax years. Firms with larger tax incentives were found to shift more, while those with large investment tax credits (ITC) in previous years exhibited a lower tendency to shift due to the IRS' ITC limitations.

Accounting and auditing, Carryback losses

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Cross-jurisdictional income shifting and earnings valuation

Article Abstract:

A study examined the income shifting practices of US multinational enterprises (MNEs). Data were collected from a sample of manufacturing companies between 1984 and 1992. Findings revealed that MNEs exposed to average foreign tax rates higher than the US tax rate engaged in more tax-motivated income shifting than other MNEs. They were seen to shift about $25 million to $30 million of income per company to the US annually. This amounts to a total transfer of roughly $34 billion to $40 billion of income to the US. Results also demonstrated that the multiple assigned to reported domestic earnings will indicate that these earnings combine foreign and domestic source income, on the conditions that pricing of unshifted domestic and foreign income are different and investors acknowledge that a part of foreign income is being reported as domestic income.

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