Tax Haven Activities and the Tax Liabilities of Multinational Groups

This paper investigates the effect of tax haven operations on the tax liabilities of corporate groups headquartered in 15 OECD countries. Using consolidated accounting data from ORBIS (2003-2007), this work finds that, at the mean, an additional tax haven subsidiary reduces tax liabilities over total assets by 7.4 per cent in the long run. At the mean, the marginal effective tax rate (ETR) of a corporate group with tax haven subsidiaries is one percentage point lower than it is for groups without low-tax offshore operations. The results also show that the marginal ETR of companies headquartered in countries with a territorial system is lower than that of companies headquartered in jurisdictions with a worldwide system of taxation on corporate profits. More specifically, corporate groups headquartered in the United States have the highest marginal ETR.Corporate Income Tax; Multinationals; Profit shifting; Tax Havens