How Multinationals Save Taxes – And What this Implies
Tax avoidanceseems to be just beginning to make the news. It was put on the political agenda only recently by public pressure and press releases pointing out that the big multinational companies pay almost no corporate taxes thanks to advanced strategies of intra-firm trade and borrowing.
But among economists, the topic has been on the agenda for quite a while already. In his research, Dirk Schindler analyzes theoretically how multinationals can save taxes by manipulating their capital structures via (internal) borrowing and lending and by over-invoicing intra-firm trade. He goes on to estimate empirically the effects of such a behavior and to evaluate how the ownership structure affects these results.
He also examines how multinationals react to regulatory effort by tax authorities and what such regulation implies for the total set of tax-avoidance strategies, for real investment of firms, and for the tax revenues of governments. It turns out that very surprising results are possible depending on the exact design of tax-avoidance rules and tax-engineering (concealment) costs. Furthermore, he is interested in the welfare effects of tax havens that facilitate tax avoidance.
One project that Mr Schindler will work on during this visit is on providing a theoretical reasoning for the existence of Controlled-Foreign-Company (CFC) rules that restrict all affiliates worldwide of domestically headquartered multinationals from shifting profits to tax havens. It is still little understood why governments rely on such CFC rules instead of implementing thin-capitalization rules and enforcing the arm’s-length principle domestically only. According to the idea Mr Schindler is delving into, CFC rules allow for improving a country’s position in a tax-competition game.
Another strand of Mr Schindler’s research is on designing the optimal social-insurance package when individuals are facing uncertain labor incomes and risk human capital investment. He analyzes various complementing instruments (such as education subsidies, capital taxation, and public investment in the quality of the educational system) to reduce excess burden created by taxing risky labor incomes, and he evaluates the effects of combining these catalysts in order to maximise social welfare.
Dirk Schindler both received his doctorate and his post-doctoral degree from the University of Konstanz, Germany. In 2012, he joined the Norwegian School of Economics (NHH) in Bergen, and also became a founding member of the Norwegian Center for Taxation (NoCeT).