Profit Shifting During Foreign Tax Holidays

Chow, Travis; Hoopes, Jeffrey L.; Maydew, Edward L.

doi:10.2139/ssrn.3625168

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Profit Shifting During Foreign Tax Holidays

Forthcoming in The Accounting Review

51 Pages Posted: 12 Aug 2021 Last revised: 19 Sep 2022

See all articles by Travis Chow

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Edward L. Maydew

University of North Carolina at Chapel Hill

Date Written: August 9, 2022

Abstract

We undertake the first empirical analysis of profit shifting by U.S. firms during foreign tax holidays. We show that foreign tax holidays have become a prevalent and powerful tax planning strategy among U.S. firms. We find that U.S. firms significantly increase their outbound profit shifting while participating in foreign tax holidays. However, we also find that profit shifting associated with tax holidays comes at the cost of increased tax uncertainty. Our results have important implications for policy making and for understanding firm behavior.

Keywords: income shifting; tax holidays; international tax

JEL Classification: H25; H26; M41

Suggested Citation: Suggested Citation

Chow, Travis and Hoopes, Jeffrey L. and Maydew, Edward L., Profit Shifting During Foreign Tax Holidays (August 9, 2022). Forthcoming in The Accounting Review , Available at SSRN: https://ssrn.com/abstract=3625168 or http://dx.doi.org/10.2139/ssrn.3625168