International Tax and Public Finance

, Volume 2, Issue 1, pp 55–83 | Cite as

Corporate domicile and average effective tax rates: The cases of Canada, Japan, the United Kingdom, and the United States

  • Julie H. Collins
  • Douglas A. Shackelford
Article

Abstract

We use financial statement information to estimate three alterantive average effective tax rates for firms domiciled in Canada, Japan, the United Kingdom, and the United States during the period 1982 to 1991. While many of the firms we examine operate worldwide, we use the termdomicile to refer to the legal residence or site of incorporation of the parent company. Our objective is to determine themarginal impact of a company's domicile on its worldwide tax burden, with controls for industry and year. We find both among domestic-only companies and among multinational companies the domiciles are consistently ranked in descending order by average effective tax rates as Japan, the United Kingdom, the United States, and Canada. In comparing domestic-only companies and multinationals domiciled in the same jurisdiction, only U.S. multinationals consistently face a greater tax burden than their domestic counterparts.

Key words

effective tax rates financial statements domicile 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Altshuler, R. and J. Mintz. (1995). “U.S. Interest-Allocation Rules: Effects and Policy.”International Tax and Public Finance, 2(1).Google Scholar
  2. American Institute of Certified Public Accountants. (1987).The Accounting Profession in The United Kingdom. AICPA.Google Scholar
  3. American Institute of Certified Public Accountants. (1992).Accounting Trends and Techniques. AICPA.Google Scholar
  4. Ando, A., and A. Auerbach. (1988). “The Cost of Capital in the United States and Japan: A Comparison.”Journal of the Japanese and International Economies, 2, 134–158.Google Scholar
  5. Bradford, D., and D. Fullerton. (1981). “Pitfalls in the Construction and Use of Effective Tax Rates.” In C. Hullen (Ed.),Depreciation, Inflation, and the Taxation of Income from Capital (pp. 251–278). Washington, D.C.: Urban Institute Press.Google Scholar
  6. Choi, F., and G. Mueller. (1992).International Accounting. Englewood Cliffs, NJ: Prentice Hall.Google Scholar
  7. Collins, J., D. Kemsley, and D. Shackelford. (1995). “Tax Reform and Foreign Acquisitions: A Microanalysis.”National Tax Journal, 48(1), 1–21.Google Scholar
  8. Cummins J., T. Harris, and K Hasset. (1993). “Accounting Standards, Information Flow, and Firm Investment Behavior.” NBER working paper.Google Scholar
  9. Devereux, M., and H. Freeman. (1995). “The Impact of Tax on Foreign Direct Investment: Empirical Evidence and the Implications for Tax Integration Schemes.”International Tax and Public Finance, 2(1).Google Scholar
  10. Doing Business in the United Kingdom. (1991). City: Price Waterhouse.Google Scholar
  11. Fullerton, D. (1984). “Which Effective Tax Rate?”National Tax Journal, 37(1), 23–41.Google Scholar
  12. Governmental Accounting Office (GAO). (1992).1988 and 1989 Company Effective Tax Rates Higher Than in Prior Years. Washington, D.C: GAO. GAO/GGD-92-111.Google Scholar
  13. Grubert, H., T. Goodspeed, and D. Swenson. (1993). “Explaining the Low Taxable Income of Foreign-Controlled Companies in the United States.” In A. Giovannini, R.G. Hubbbard, and J. Slemrod (Eds.),Studies in International Taxation (pp. 237–270). Chicago: University of Chicago Press.Google Scholar
  14. Hines, J. (1991). “The Flight Paths of Migratory Corporations.”Journal of Accounting, Auditing, and Finance, 6, 447–479.Google Scholar
  15. Jorgenson, D., and R. Landau. (1993).Tax Reform and the Cost of Capital. An International Comparison. Washington, D.C: Brookings.Google Scholar
  16. Jun, J. (1993). “The Impact of International Tax Rules on the Cost of Capital.” NBER working paper.Google Scholar
  17. King, M., and D. Fullerton. (1984).The Taxation of Income from Capital. Chicago: University of Chicago Press.Google Scholar
  18. Merrill, P., and R. Patrick. (1992). “U.S. International Tax Policy for a Global Economy.”Tax Notes International, January 20, 137–143.Google Scholar
  19. Nobes, C., and R. Parker. (1988).Comparative International Accounting. Deddington, U.K.: Philip Alan.Google Scholar
  20. Organization for Economic Co-operation, and Development. (1991).Taxing Profits in a Global Economy: Domestic and International Issues. Paris: OECD.Google Scholar
  21. Slemrod, J., and K. Timbers. (1990). “Japanese and U.S. Tax Treatment of their Resident Multinationals: Who Has the Competitive Advantage ?” University of Michigan working paper, prepared for Princeton University and the Japanese Ministry of Finance Conference on Comparative Tax Policy.Google Scholar
  22. U.S. House of Representatives. (1990). “Tax Underpayments by U.S. Subsidiaries of Foreign Companies.” Hearings Before the Subcommittee on Oversight of the Committee on Ways and Means, One Hundred First Congress, Second Session, July 10 and 12.Google Scholar
  23. Whalley, J. (1990). “Foreign Responses to U.S. Tax Reform.” In J. Slemrod (Ed.),Do Taxes Matter? The Impact of the Tax Reform Act of 1986 (pp. 286–314). Cambridge, MA: MIT Press.Google Scholar
  24. Wheeler, J. (1988). “An Academic Look at Transfer Pricing in a Global Economy.”Tax Notes, July 4, 87–96.Google Scholar
  25. World Accounting. (1991). City: Bender.Google Scholar

Copyright information

© Kluwer Academic Publishers 1995

Authors and Affiliations

  • Julie H. Collins
    • 1
  • Douglas A. Shackelford
    • 2
  1. 1.Kenan-Flagler Business School, Carroll Hall, CB 3490University of North CarolinaChapel Hill
  2. 2.Kenan-Flagler Business School, Carroll Hall, CB 3490University of North CarolinaChapel Hill

Personalised recommendations