Multinational Tax Avoidance and Tax Policy

Abstract

Previous literature provides evidence that multinational corporations (MNC) are significantly less profitable in terms of taxable income than domestic controlled corporations (DCC) in Norway. The differential in taxable income profitability is partly attributed to MNCs’ tax avoidance behavior. This paper aims to complement these studies by looking at recent data and extend the literature by considering recent tax policy changes in Norway, i.e. corporate tax cuts and the introduction of the interest barrier rule. With a sample of 724 087 observations spread over ten years, we get results consistent with multinational tax avoidance. When controlling for firm size, age, industry, leverage and asset composition, MNCs have on average a 1.1% lower taxable income profitability than DCCs. Corporations changing status from DCC to MNC experience a reduction in the taxable income profitability by 0.57%. Though significant, our results indicate a reduction in multinational tax avoidance when comparing with Langli and Saudagaran (2004) and Balsvik, Jensen, Møen, and Tropina (2009). Adoption of the interest barrier rule results in a significantly positive treatment effect on tax profitability of affected firms. However, we do not get significant results for MNCs. Attempting to isolate the effect of a corporate tax cut does not yield any indications of reduced multinational tax avoidance.