Are U.S. Multinational Corporations Becoming More Aggressive Income Shifters?


  • Accepted by Merle Erickson. Klassen is the Robert Harding Research Leadership Fellow at the School of Accounting and Finance. Laplante gratefully acknowledges the support of the Terry-Sanford Research Award from the Terry College of Business, and the J.M. Tull School of Accounting. We thank the Editor and an anonymous referee; Ben Ayers, Linda Bamber, Travis Chow, Alan Douglas, Linda Krull, Mark Laplante, Kevin Markle, Sean McGuire, Tom Omer, Doug Shackelford, Terry Shevlin, and James Thompson; and workshop participants at the Universities of Arizona, Connecticut and Tennessee for helpful comments.

  • [Correction added after online publication September 4, 2012: the author name “STACIE K. LAPLANTE” was misspelled “STACIE K. LAPLANT.” This has been corrected.]


This paper examines income shifting of U.S. multinational companies over the past two decades. Domestic and foreign policy makers are increasingly concerned with the effect of income shifting on dwindling tax revenues, however, extant research on income shifting by U.S. multinational enterprises is mixed. We address the disconnect between the academic literature and the policy maker's perceptions by examining the extent of multijurisdictional income shifting by U.S. multinational companies. We directly address conflicting results in extant literature and show that using either multiperiod proxies or instrumental variables overcomes weaknesses of annual proxies in this setting. Our tests show that U.S. companies have become more active at shifting income out of the United States as the regulatory costs of shifting have changed. Holding tax rate differences between U.S. and foreign jurisdictions constant, our empirical estimates suggest that our sample of 380 corporations with low average foreign tax rates collectively shifts approximately $10 billion of additional income out of the United States annually during 2005–2009 relative to 1998–2002 due to varying regulatory costs of shifting.