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We analyze the effects of the major US tax reform of 2017 on European firms. Although foreign firms that are active in the respective country should be directly affected, other foreign firms could also be indirectly affected through competition. With an event study design, we analyze stock market returns in Europe around key dates in the legislative process leading to the Tax Cuts and Jobs Act. We find positive market returns for the European firms that are active in the United States. Moreover, our results suggest an indirect effect through competition. European firms that face strong competition from US firms in their domestic markets exhibit significantly lower returns. Keywords: US tax reform, stock returns, event study, cross-border effects, international competition JEL Codes: G12, G14, H25, I. INTRODUCTION The Tax Cuts and Jobs Act (TCJA) was one of the largest tax reforms in the history of the United States. US companies benefit from several elements of [...]

Using pairs of similar U.S. and European firms listed on the S&P 500 or Stoxx Europe 600, we examine effective tax differentials between U.S. multinational corporations (MNCs) and their European peers. We particularly focus on the influence of tax policy on tax differentials between MNCs from the United States and Europe. Our findings suggest that U.S. MNCs had been avoiding more taxes compared to their European peers before the 2017 U.S. tax reform. Furthermore, results show that U.S. MNCs compensated for about half of the significantly larger statutory lax burden before the U S. tax reform by avoiding more taxes than their European peers. Based on past reforms, we confirm that international tax legislation affects effective tax expenses. Our results reveal that more lenient controlled foreign company (CFC) rules are associated with lower effective tax rates. Moreover, our results suggest that the switch to a territorial system reduces deferred taxes, while we find no evidence that current and foreign tax expenses are affected. Keywords: effective tax rate, corporate taxation, tax avoidance, tax reform, CFC rule, pair matching, difference-in-differences analysis JEL Codes: H26, H32, F23 We examine effective tax differentials between U.S. multinational corporations (MNCs) and their European peers. We particularly focus on the influence of tax policy on tax differentials between MNCs from the United States and Europe. By applying matching techniques, we create pairs of very similar U.S. and European firms listed on the S&P 500 or Stoxx Europe 600. Based on these matched pairs, we analyze the determinants of effective tax rate (ETR) differentials that arise between very similar U.S. and European MNCs. Our findings suggest that U.S. MNCs had been avoiding more taxes compared to their European peers before the 2017 U.S. tax reform. U.S. MNCs reported lower ETRs than their European counterparts. We find higher ETRs of U.S. MNCs only if deferred tax expenses associated with the U.S. worldwide tax system are considered. Furthermore, our results show that U.S. MNCs compensated for about half of the significantly larger statutory tax rate before the U.S. tax reform by avoiding more taxes than their European peers. Based on past reforms, we further confirm that international tax legislation affects effective tax expenses. In particular, we analyze how changes in the application of controlled foreign company (CFC) rules in the United States and Europe have affected tax expenses. Our results show that the ETRs of U.S. MNCs decreased significantly after the check-the-box introduction; the same is true for ETRs of European MNCs after a reform in the European Union in 2006. Additional analyses reveal that MNCs whose activities allow for profit shifting have benefited most from a more lenient application of CFC rules. Moreover, our results suggest that the switch to a territorial system in the United Kingdom in 2009 reduced deferred taxes, while we find no evidence that current and foreign tax expenses were affected., I. INTRODUCTION Until the fundamental U.S. tax reform was enacted in December 2017, the U.S. statutory tax rate on corporate profits was one of the highest in a worldwide comparison. [...]

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To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1467-9701.2009.01174.x Byline: Michael Overesch (1), Georg Wamser (2) Abstract: Abstract This paper investigates whether different types of FDI are asymmetrically affected by corporate taxation. We classify investment projects according to several characteristics such as the general motivation for FDI, the type of business activity, or the degree of internationalisation of the multinational firm. Subsequently, we analyse how local taxes influence the number of German outbound investments in European countries. The analysis reveals significant asymmetries with regard to tax effects: vertically integrated investments are more sensitive to host-country taxation than horizontal FDI; larger tax rate elasticities are estimated if business activities are considered highly mobile; and in accordance with profit-shifting considerations, subsidiaries of more internationalised companies are less tax responsive to host-country taxation. Author Affiliation: (1)Centre for European Economic Research (ZEW) (2)Ifo Institute

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1467-9701.2009.01214.x Byline: Michael Overesch (1), Johannes Rincke (2) Abstract: Abstract We exploit the rapid economic integration of Eastern and Western Europe after 1989 as a natural experiment to assess the effect of international competition for mobile capital on corporate tax rates. By means of a series of difference-in-difference estimations, we show that Western European countries which have been directly exposed to neighbours in Eastern Europe have reacted to the intensified competition by cutting their corporate tax rates by 8.1 to 10.5 percentage points relative to those countries which do not share a common border with countries in Eastern Europe. It seems that this effect has mainly worked through Eastern European countries offering lower wages and less through competition over corporate tax rates. Author Affiliation: (1)Centre for European Economic Research (ZEW), Mannheim (2)University of Munich