Identifying peers in international tax competition. Issue 9 (21st May 2018)

• Record Type: Journal Article
• Authors: Friesner, Daniel L.; McPherson, Matthew; Schibik, Tim; Brajcich, Andrew
• Is Part Of: Applied economics letters. Volume 25:Issue 9(2018)
• Page Start: 584
• Page End: 587
• Publication Date: 2018-05-21
• Subjects: Income shifting -- international tax competition -- effective tax rate benchmarking; F23 -- F38 -- G38; Economics -- Periodicals; Economics, Mathematical -- Periodicals; 330
• DOI: 10.1080/13504851.2017.1349280
• Languages: English
• ISSNs: 1350-4851

Abstract

ABSTRACT: Multinational companies (MNCs) have historically used corporate subsidiaries to isolate income earned in lower-taxed jurisdictions from tax in a higher-rate home country. This planning technique has been long accepted as a strategy to lower the MNC's effective tax rate and maintain shareholder value. A recently study, however, demonstrates that this is an inefficient, and possibly inappropriate, strategy. This article conducts a comprehensive empirical benchmarking analysis by applying cluster analysis to empirically identify peer groups of MNCs operating in the pharmaceutical industry. We find that most firms consistently fall into the same cluster, providing evidence that income shifting can be benchmarked by industry sector. We also find special cases where firms should be excluded from the benchmark.