INTERNATIONAL TAX RESEARCH
BEYOND APB 23: PART DEUX
Jennifer Blouin
2015 ATA Doctoral Consortium
KNOWLEDGE FOR ACTION
Broad Areas of Recent Work
1. Role of taxes on investment
2. Role of taxes on transfer pricing
3. Role of accounting for income taxes on foreign
investment
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Blouin
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What is an accountant’s comparative advantage?
1. We understand the numbers
2. We understand that, if tax policy affects financial
statements, there could be unintended
consequences
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Blouin
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1. Role of taxes on investment
• Do taxes affect the location and amount of investment?
− Yes - Old work focuses on identifying the marginal source of
foreign direct investment (retained earnings v. contributed
capital)
• Hartman (1985), Boskin and Gale (1987), Sinn (1993, 1991),
Hines and Rice (1994) etc.
− Recent work examines overinvestment in foreign M&A
• Edwards et al. (2014); Hanlon et al. (2014)
− Fruitful new work – U.S. investment by foreign firms:
• Does the U.S. system unfairly advantage foreign buyers in
the U.S. M&A market? Bird et al. (2014)
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Blouin
1. Role of taxes on investment con’t
• Do taxes affect the repatriation of foreign earnings?
− Although theory suggests otherwise, Hartman
(1985), many studies find that taxes do matter in
repatriation decisions
• Kopits (1972); Mutti (1981); Hines and Hubbard (1990);
Goodspeed and Frisch (1989); Altshuler and Newlon (1993);
Desai, Foley and Hines (2001, 2007) etc.
− Why the disparity between Hartman and the
empirical work?
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Blouin
Altshuler, Newlon, and Randolph (1995)
“None of the analyses mentioned on the prior slide
has departed from the Hartman result: The level of
the repatriation tax does not by itself affect the
incentive to repatriate income rather than reinvest it”.
Each of these papers have included settings where there is firmcreated intertemporal variation in the repatriation taxes
Transitory v. permanent repatriation tax rates
• The American Jobs Creation Act of 2004
−
Blouin Krull (2009), Dharmapala et al. (2011),
Faulkender Peterson (2012)
KNOWLEDGE FOR ACTION
Blouin
An Aside: Nine years later, we are still debating the
efficacy of the AJCA…
Brennan (2014) Where the Money Really Went: A New Understanding of
the AJCA Tax Holiday, Northwestern Law School Working Paper
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Blouin
Why? Because the AJCA response matters in
the multinational tax reform debate
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Blouin
Potential future work on repatriation activity
• Where did all of the AJCA funds go?
• What would happen if the worldwide tax system is repealed?
• What is the role of financial constraints on repatriation activity?
Are U.S. firms really constrained by our system?
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Blouin
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2. Role of taxes on transfer pricing
• Shifting out of high-tax foreign into lower-tax
foreign/US creates permanent tax savings
• Shifting from US into low-tax foreign creates
deferral of taxes until repatriation
KNOWLEDGE FOR ACTION
Blouin
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Basic Findings
• Affiliate profitability is negatively associated with the
country’s tax rate
Harris (1993); Klassen et al (1993); Jacob (1996)
Klausen and LaPlante (2012)
• Intra-firm trade (sales, pricing etc) is consistent with
firms shifting income to low tax jurisdictions.
Clausing (2000)
• US MNCs shift income into the US when foreign tax
rates exceed US domestic rates
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Blouin
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Future Directions for Transfer Pricing Research
• Role of the territorial v. worldwide regimes on transfer
pricing incentives
Markle (2015) - DATA: Orbis BvD
• Is income shifting bad for the U.S.?
Incentives to avoid withholding taxes (Treaty Positions)
Foreign Tax Credit generators/splitting
Check the Box
• Role of indirect taxes?
Property taxes
VAT
• Limits to transfer pricing?
Financial Constraints – Dyreng Markle (2014)
Capital structure effects
Internal frictions
KNOWLEDGE FOR ACTION
Blouin
KNOWLEDGE FOR ACTION
Blouin
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KNOWLEDGE FOR ACTION