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The effect of international income shifting on the link between real investment and corporate taxation

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  • Marques, Mário
  • Pinho, Carlos
  • Montenegro, Tânia Menezes

Abstract

Prior literature suggests that decisions on the location of investments are affected by corporate taxation and that companies relocate income in order to minimize their tax bill. However, there is little literature analyzing the relation between these two decisions. This study assesses the extent to which real investment responsiveness to corporate taxation is affected by cross-border income shifting. More precisely, it evaluates whether the tax responsiveness of real investment is lower in the presence of international income shifting activities proxied by intangible assets held by corporate groups. Using a sample of European foreign subsidiaries for the 2001–2015 period, the results suggest that the increasing ability to shift income out of higher-tax countries makes the sensitivity of real investment less responsive to a host country’s corporate taxation.

Suggested Citation

  • Marques, Mário & Pinho, Carlos & Montenegro, Tânia Menezes, 2019. "The effect of international income shifting on the link between real investment and corporate taxation," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 36(C), pages 1-1.
    • Handle: RePEc:eee:jiaata:v:36:y:2019:i:c:2
    DOI: 10.1016/j.intaccaudtax.2019.100268
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    More about this item

    Keywords

    European foreign subsidiaries; Corporate taxation; Real investment; International income shifting; Intangible assets;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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