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Taxable income differences between foreign and domestic controlled corporations in Norway

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  • John Christian Langli
  • Shahrokh Saudagaran

Abstract

Studies mainly in the United States and United Kingdom have documented that foreign controlled corporations (FCCs) report significantly lower taxable income compared to domestic controlled corporations (DCCs). This taxable income differential has been partly attributed to income shifting by multinational corporations. Using a sample of 78,879 firm-year observations from 1993 to 1996, we find similar systematic differences for firms in the manufacturing, retail and wholesale sectors in Norway. The taxable income to sales ratio is approximately 2.6 percentage points lower for FCCs compared to DCCs after controlling for start-up costs, size, industry affiliation, leverage and capital intensity. The results are statistically significant in all years and independent of whether taxable income is measured as a fraction of sales, total assets or book value of equity. Previous research has indicated that income shifting is more prevalent among large firms. This study provides evidence on small and medium-sized firms operating in Norway. With the exception of really small corporations in the manufacturing industry (e.g. with sales less than 6.7 million NOK or US$1 million), we find that the negative taxable income differential exists independent of the size of the corporations.

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  • John Christian Langli & Shahrokh Saudagaran, 2004. "Taxable income differences between foreign and domestic controlled corporations in Norway," European Accounting Review, Taylor & Francis Journals, vol. 13(4), pages 713-741.
    • Handle: RePEc:taf:euract:v:13:y:2004:i:4:p:713-741
    DOI: 10.1080/0963818042000237115
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    3. Arnt Ove Hopland & Petro Lisowsky & Mohammed Mardan & Dirk Schindler, 2014. "Income Shifting under Losses," CESifo Working Paper Series 5130, CESifo.
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    5. Dirk Schindler & Guttorm Schjelderup, 2013. "Transfer Pricing and Debt Shifting in Multinationals," CESifo Working Paper Series 4381, CESifo.
    6. Bakke, Julia Tropina & Hopland, Arnt Ove & Møen, Jarle, 2019. "Profit shifting and the effect of stricter transfer pricing regulation on tax revenue," Discussion Papers 2019/11, Norwegian School of Economics, Department of Business and Management Science.
    7. Dirk Schindler & Guttorm Schjelderup, 2010. "Profit Shifting in Two-Sided Markets," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 17(3), pages 373-383.
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