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Loss expectation and income shifting

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  • Ji Lee, Ye
  • Seon Yoo, Ji

Abstract

This study examines the effects of expected losses on the income-shifting strategies of multinational corporations (MNCs). Using a set of worldwide MNC affiliates, this study first finds empirical evidence for ex ante adjustments of income-shifting strategies according to reverse incentives for potential losses. The results also support the existence of limited flexibility introduced by Hopland et al. (2018, 2021). Second, the estimates of income shifting measured using expected tax rate differences reveal that the traditional methodology of using statutory tax rate differences is subject to an estimation bias. This estimation bias varies depending on the loss expectation status and tax-rate levels of the affiliates.

Suggested Citation

  • Ji Lee, Ye & Seon Yoo, Ji, 2023. "Loss expectation and income shifting," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(2).
    • Handle: RePEc:eee:jocaae:v:19:y:2023:i:2:s1815566923000024
    DOI: 10.1016/j.jcae.2023.100352
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