U.S. Multinational Corporations’ Initial Income-Shifting Response to the TCJA

Abstract

We find U.S. multinational corporations (MNCs) responded to the Tax Cuts and Jobs Act (TCJA) of 2017 by increasing income shifted to foreign sources in the first two years following the effective date. Financially constrained MNCs increased income shifting more, while higher operational uncertainty MNCs increased income shifting less than other MNCs. Moreover, MNCs likely to be subject to the base erosion and anti-abuse tax (BEAT) increased income shifting less than other MNCs, while firms having a global intangible low-taxed income (GILTI) inclusion are not discouraged from shifting income. MNCs that increase income shifting the most disclose less information about their GILTI liabilities. Our findings suggest that the GILTI provisions are not effective in curbing income shifting to foreign jurisdictions and that proposals such as the Global Minimum Tax are also unlikely to be effective if the rate is lower than the home country corporate income tax rate.