Profit Shifting during Foreign Tax Holidays

Travis Chow; Jeffrey L. Hoopes; Edward L. Maydew

doi:10.2308/tar-2020-0376

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The Accounting Review Vol. 98 No. 4 2023

Profit Shifting during Foreign Tax Holidays

Travis Chow¹; Jeffrey L. Hoopes²; Edward L. Maydew²

¹ The University of Hong Kong · ² The University of North Carolina at Chapel Hill

Abstract

We undertake the first empirical analysis of profit shifting by U.S. firms during foreign tax holidays. We show that foreign tax holidays have become a prevalent and powerful tax planning strategy among U.S. firms. We find that U.S. firms significantly increase their outbound profit shifting while participating in foreign tax holidays. However, we also find that profit shifting associated with tax holidays comes at the cost of increased tax uncertainty. Our results have important implications for policy making and for understanding firm behavior.

DOI: 10.2308/tar-2020-0376
Volume: 98
Issue: 4
Pages: 115-142
Language: en
Sources: openalex bibtex:phds-export.bib crossref

Profit Shifting during Foreign Tax Holidays

Abstract

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