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Income Shifting out of the United States by Foreign Multinational Firms

James F. Albertus

Carnegie Mellon University, Tepper School of Business ,

Abstract I find that foreign multinational firms engage in tax-motivated income shifting out of the United States. The analysis uses novel data on foreign-owned U.S. subsidiaries as well as variation in foreign countries’ tax rates and controlled foreign corporation rules. Foreign multinational firms primarily rely on tax-motivated transfer pricing to shift income out of the United States, and the aggregate amount of shifted income is modest. When foreign tax policy changes inhibit income shifting, foreign-owned U.S. subsidiaries’ investment and employment fall. The results indicate that the U.S. economy has limited exposure to tax policies set abroad through foreign direct investment in the United States.

DOI

10.1093/rfs/hhaf021

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en

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