Does domicile affect a multinational's total worldwide taxes? Yes, says a recent NBER paper that looks at effective tax rates (ETRs) across countries and estimates the extent to which the location of a firm's operations affects its global corporate income taxes.
Scholars have long argued that multinationals are adept at arranging their affairs to undo differences in taxation across countries. By shifting income from high-tax to low-tax countries through transfer pricing, using hybrid entities that are treated as corporations in some countries and flow-through entities in others, stripping profits from high-tax countries through intra-company financing, repatriating under favourable tax conditions, and other tax avoidance mechanisms, multinationals mitigate the impact of domicile in a high-tax centre.
The paper corroborates this. It finds that over the last two decades, ETRs steadily declined as companies took to domicile-swopping with gusto. For nine countries with enough observations to report annual ETRs in both 2009 and 1989, all had lower ETRs in 2009 than in 1989 with a mean and median decline of 12 percentage points. The largest ETRs drops were 22 percentage points for Japan and 15 percentage points for Switzerland and the UK. The US had a decline of 12 percentage points to 20% in 2009.