Do U.S. Multinationals Face Different Tax Burdens than Do Other Companies?

• Published in: Tax policy and the economy Vol. 17; pp. 141 - 168
• Main Authors: Collins, Julie H., Shackelford, Douglas A.
• Format: Journal Article
• Language: English
• Published: The MIT Press 01.01.2003
• Subjects: Business structures; Corporate income taxes; Corporate taxes; Cost estimates; Effective tax rate; Estimated taxes; Income taxes; State income tax; Subsidiary companies; Taxation
• ISSN: 0892-8649; 1537-2650
• DOI: 10.1086/tpe.17.20140507

This paper address two policy questions: Do U.S. multinationals face a different tax burden than companies that do business only in the U.S.? Do U.S. multinationals face a different tax burden from multinationals that are incorporated in other countries? These questions are important because differences in tax burden can affect where firms incorporate (i.e., establish their legal domicile) and can entice them to relocate. Answers to these questions may shed light on current policy issues, such as inversions and responses to the World Trade Organization. The paper reviews the extant empirical evidence related to inferences of a U.S. multinational's "tax competitiveness" and offers new evidence comparing the average tax rates of U.S. multinationals to both U.S. domestics and to non-U.S. multinationals. In assessing evidence related to whether the U.S. tax system results in U.S. companies becoming attractive takeover targets for non-U.S. companies, we review studies comparing the tax liabilities of U.S. companies that are foreign-controlled to those that are U.S.-controlled. We provide new data on the cost of U.S. domicile for multinationals for the years 1992 to 1997. These new data update and expand Collins and Shackelford (1995), which compared the average tax rates of U.S. multinationals to domestic only companies' average tax rates and to U.K. and Canadian multinationals' average tax rates during the 1980s. Because of substantial changes in international business and tax since the 1980s, this update enables us to test whether what tax costs of being a U.S. multinational have changed since then. We find that companies domiciled in the U.S face higher tax burdens than U.S. domestic-only companies, higher tax burdens than Canadian multinationals, and similar tax burdens to British multinationals. Based on our review of prior evidence and the new evidence presented here, the evidence is consistent with at least some U.S. companies facing heavier tax burdens because they are globally positioned.