Tax Haven Incorporation for US Headquartered Firms

Tax Haven Incorporation for US Headquartered Firms

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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.


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.

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