Tax Avoidance and Multinational Firm Behavior

This chapter reviews, and at times extends, the literature on multinational corporate income tax avoidance and its consequences. It is first important to note that multinational corporations pay a substantial amount of taxes, both direct and indirect. Yet, it is also the case that there is evidence 1) of tax avoidance, including cross-jurisdictional income shifting and 2) that the location of ‘real’ items such as investment, debt, and employment are sensitive to taxation. In addition, in certain cases, tax avoidance necessitates changes to ‘real’ activity. While there is evidence of income shifting, the literature is not settled on the extent to which it occurs. The chapter briefly touches on the financial accounting and reputational incentives and disincentives for tax avoidance. It ends with a short discussion of the early research following recent tax-regime changes