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The Effect of Changes in Income Shifting on Affiliate Managers' Internal Reporting Decisions

Kenneth J. KlassenCinthia Valle Ruiz

出版	SSRN, 2021
URL	http://books.google.com.hk/books?id=v6_fzwEACAAJ&hl=&source=gbs_api

註釋

This paper examines the interplay between tax and internal reporting incentives among affiliates of multinational corporations (MNCs). Using granular data of affiliates belonging to MNCs from 21 European countries, our study provides new empirical evidence of affiliate reporting responses induced by changing tax plans. As a baseline, we show some evidence that in general, affiliates' discretionary accruals are negatively correlated with affiliate tax rates, similar to income shifting responses. When high tax-rate countries tighten income shifting rules, we first document that income shifting is reduced and low tax-rate affiliates have less income. Second, we document that managers of these low tax-rate affiliates offset this decrease in profits by managing earnings upwards. Our results are consistent with firms not adjusting quickly the affiliate managers' incentives in the face of changing tax planning strategies, and affiliates manage reported earnings to offset the effect of changes in the tax planning of the firm.