Sarah Clifford wins Best Paper Award

Oxford University's Centre for Business Taxation awards the best paper of their annual doctoral conference. This year PhD student at Department of Economics, Sarah Clifford, was awarded the grant in competition with a large group of presentations from junior researchers.

Sarah's paper is titled Taxing Multinationals Beyond Borders: Financial and Locational Responses to CFC Rules and is published as working paper within the Economic Policy Research Unit (EPRU) at Department of Economics, UCPH. Sarah summaries the paper:

Multinational groups have considerable scope in determining the geographical location of income and this potentially leaves the corporate tax base of high-tax countries vulnerable. Rules governing how foreign income of domestic firms is taxed therefore become an essential dimension in the design of tax systems.

Using a large subsidiary-level panel dataset on worldwide operations of multinational firms, the paper studies one of the most widely used and advocated anti-tax-avoidance measures: Controlled Foreign Corporation (CFC) rules. By including income of foreign low-tax subsidiaries in the domestic tax base, these rules create an incentive for multinationals to move income away from very low-tax environments. Exploiting variation around the tax threshold used to identify low-tax subsidiaries, we investigate behavioural responses to the CFC tax penalty.

We find that multinationals react on the intensive margin by redirecting profits from low-tax subsidiaries below the threshold to subsidiaries just above. On the extensive margin more new subsidiaries are placed just above the threshold and less below. Responses on both margins imply more global corporate tax revenue. Evidence suggests that part of this revenue gain accrues to the rule-enforcing country – a finding that could render coordination between countries less crucial in this setting than has previously been suggested in other areas of international tax policy.