The international tax law of Controlled Foreign Corporation rules and their influence on multinational companies' behaviour

Abstract

This dissertation consists of three self-contained essays which contributes to a better understanding of Controlled Foreign Corporation (CFC) rules, an anti profit shifting legislation enacted in many countries around the globe. Therefore, this dissertation researches the behavioral responses of multinational firms to tax legislation changes, profit shifting opportunities, and the lack of them over time. To learn more about these laws, it is of great importance to rely on a broad data set of these specific CFC rules. Therefore, an essential part of this dissertation is a self-collected dataset on CFC rules around the world. This dataset is unique in its comprehensiveness, containing data on CFC rules of 27 countries for the time period from 2002 to 2014.

The first essay provides an extensive survey on the self-collected CFC rule dataset for every country and compares the different laws briefly in terms of changes over time and across countries. The second research essay builds on this CFC rules dataset and is merged with a huge firm level dataset of parent-subsidiary connections and their profit accruing. By doing so, in this part of the dissertation, I show the influence of CFC laws on firm investment and profit shifting behavior across borders. The first part of this essay builds a theoretical foundation for the following empirical analysis where I use bunching and fixed effects regression models to demonstrate the results in addition to some first graphical evidence. The results show that CFC rules work in the intended way and prevent profit shifting behavior but, also, that there exist ways to circumvent them which must be taken into account from policy makers. The third essay researches the influence of CFC rules on cross-border mergers and acquisitions (M&A). Again, the large CFC rule dataset is merged this time with a large M&A dataset. Using first graphical evidence from the raw data and advanced logistic regression methods we provide evidence that, again, CFC rules seem to influence cross-border M&A deals in the intended way and lead to less profit shifting behavior for firms that are potentially affect by these laws.