Tax Haven Incorporation for US Headquartered Firms
Report

Tax Haven Incorporation for US Headquartered Firms

No Exodus Yet


Editorial Rating

7

Qualities

  • Innovative

Recommendation

Legal tax avoidance – including the use of tax havens – has reduced corporate tax bills to a pittance in countries where companies make big profits. But professors Eric J. Allen and Susan C. Morse put the lie to the common belief that more and more US-based multinationals are incorporating in tax havens. Their research spans years of data and indicates that only about 3% of firms exploit that loophole. Given the dramatic scope for US tax planning, why would companies pay taxes they can legally avoid? getAbstract recommends this well-researched paper – with its handy synopsis of relevant US tax law – to business executives and tax professionals.

Summary

Multinational corporations (MNCs) can exploit US tax law to minimize their tax liabilities in the US. Setting up subsidiaries in tax havens can reduce the effective tax rate on foreign earnings to between roughly 3% and 5%. Incorporating the parent company in a tax haven makes it possible to reduce this rate further and to protect a portion of domestic income from US taxes.

Given the potential financial benefits, tax haven incorporation ought to be more popular for US-based companies. In recent decades, US law and tax regulations...

About the Authors

Eric J. Allen is an assistant professor of accounting at the Marshall School of Business, University of Southern California. Susan C. Morse is an assistant professor at the University of Texas’s School of Law.


More on this topic

By the same authors

Startup Ltd.
7
For the euro there is no shortcut to becoming a dominant currency
7
Private Inequity: How a Powerful Industry Conquered the Tax System
9
The Economic Consequences of Major Tax Cuts for the Rich
7
Prosperity
8
Fiscal Therapy
8
Still the World’s Safe Haven?
8

Related Channels