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Corporate income and consumption tax planning in the digital age - evidence from European service firms
Werner, Ann-Catherin
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Olbert, Marcel
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Dokumenttyp:
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Präsentation auf Konferenz
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Erscheinungsjahr:
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2018
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Veranstaltungstitel:
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5th Annual MaTax Conference
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Veranstaltungsort:
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Mannheim, Germany
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Veranstaltungsdatum:
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04.-05.10.2018
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Sprache der Veröffentlichung:
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Englisch
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Einrichtung:
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Fakultät für Betriebswirtschaftslehre > ABWL u. Betriebswirtschaftliche Steuerlehre II (Spengel 2006-)
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Fachgebiet:
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330 Wirtschaft
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Freie Schlagwörter (Englisch):
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Digital Economy , Profit Shifting , Consumption Taxes , Tax Planning
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Abstract:
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There is an increasing political concern that firms in the globalized, digital economy avoid income
and consumption taxes. We examine income and consumption tax planning of service
firms in Europe through managing the respective tax bases and hypothesize that both tax planning
channels are interrelated. We exploit corporate affiliate-level panel data and a unique setting
in Europe over the period 2007-2015 with 71 staggered and plausibly exogenous corporate
income and consumption tax rate changes (and differences). We find that firms significantly
respond to incentives from value-added taxes evidenced by a tax-rate semi-elasticity of reported
sales of around 0.5. Consistent with greater discretion over the jurisdiction of value-added tax
liability, we find a significantly larger effect for firms in the digital service sector. We then
show that income tax-motivated profit shifting behavior depends on the extent to which firms
report sales in order to minimize consumption taxes. In particular, we document that income
tax-motivated profit shifting behavior is completely attenuated for firms that, on average, respond
to higher (lower) value-added taxes via reporting lower (higher) sales. Our study offers
a new explanation why some firms avoid more income taxes than others. The results suggest
that minimizing the consumption tax burden can be a dominating tax consideration that imposes
a constraint on income-tax motivated transfer pricing.
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