RESEARCH UNIT <<FOR 2738>>


Since September 2019, the RSIT hosts the DFG-funded Research Unit FOR 2738 which aims at "Understanding the Behaviour of Multinational Corporations in the Context of International Tax Institutions". Ten leading German researchers in the fields of international taxation, public economics and accounting collaborate in this research unit on six subprojects (see below).   

OBJECTIVE


The objective of this RU is to provide a comprehensive analysis of the effects of international tax rules on intended and unintended margins of multinational firm activity and their consequences for economic outcomes and welfare. Our goal is to bring the literature forward by making fundamental contributions including the generation of an extensive dataset on tax rules suitable for quantitative research and to inform policymakers' decisions. In order to achieve this objective, we need to develop a deeper understanding of how different taxes and anti-avoidance tax rules affect multinational corporations at the core of their businesses. The multi-dimensionality and complexity of both tax law and the organisation of MNCs call for accurate knowledge of the tax rules determining MNC behaviour, and for an integrative
methodological approach.

SUBPROJECTS


Project 1: Measuring Tax Incentives

(Merlo, Ruf, Stähler, Strohmaier, Wamser)

Project 1 is devoted to generating the comprehensive dataset on tax rules that will be at the heart of the RU. The main objective of P1 is to collect, describe, and provide data to measure tax incentives to be utilised in the other projects. Beyond data collection (statutory corporate tax rates, depreciation rules, anti-tax-avoidance rules, bilateral tax agreements, value added taxes, investor-level taxes, etc.), P1 also aims at calculating forward-looking effective tax measures, which are comprehensive measures of tax burden. The data will be described and the main features of the data will be documented in data handbooks and survey articles. Datasets will be made available to researchers of the RU (where the data will be used to address particular research questions) and to a broader public after completion of the RU's projects.

project 2: The Effects of Anti-Tax-Avoidance Rules on Real Investment Activity

(Merlo, Riedel, Stähler, Wamser)

Project 2 will develop a better understanding of how different margins of real MNC activity are affected by ATARs and taxes. The emphasis is on the modelling and consideration of the effect of tax instruments in all countries in which an MNC operates. In particular, P2 examines the following issues. First, the role of internal capital markets for real investments and the consequences of TCRs for the allocation of funds and investment within the firm. Second, the consequences of TP legislation for real investment, employment, asset and ownership structure. Third, P2 will include a quantification of the aggregate costs of ATARs by setting up a quantitative model of FDI that includes taxation and ATARs.

project 3: Taxing Multinational Firms: A Developing Country Perspective

(Merlo, Riedel, Strohmaier)

Project 3 will analyse to what extent and through which channels profit-shifting activities of MNCs affect developing countries, and whether ATARs and DTTs by developing countries curb profit shifting and affect real activity of MNCs in those countries. The analysis of developing countries deserves a closer look because there is very little evidence on profit shifting and no evidence at all on the effectiveness of ATARs in developing countries. The findings for developed economies may not necessarily carry over to less developed economies since profit-shifting strategies and volumes may differ between developed and developing countries, and the effectiveness of ATARs is likely to be different as these countries face higher costs to enforce provisions.

Project 4: Management Behaviour, Tax Institutions, and Tax Avoidance of Multinational Firms

(Overesch, Wamser)

Project 4 will deliver a better understanding of the determinants of corporate tax payments. In particular, this project examines how tax legislation and manager behaviour interact in determining tax-planning strategies of MNCs. The goal is to decompose the effects of tax legislation, firm characteristics, and individual managers on backward-looking effective tax rates.

project 5: Taxation and Firm Productivity

(Langenmayr, Merlo, Stähler, Wamser)

Project 5 examines the role of tax policy in determining firm productivity. Firm heterogeneity is a result of R&D activities, which also facilitate tax planning as market prices for intra-firm R&D services do not exist. The aim of this project is to develop a better understanding of how tax planning through the location of intangible assets, the potential success of R&D and productivity interact depending on market conditions.

project 6: CEO Taxation

(Merlo, Ruf, Stähler, Strohmaier, Voget, Wamser)

Project 6 analyses how personal income taxation and executive compensation interact with corporate taxation in determining profit shifting. In particular, this project will first model the effect of CEO taxation on effort and location choice, and empirically assess the effect of CEO taxation on firm productivity through those channels. Second, it will investigate the relationship between cash holdings and taxation at the CEO level. Third, the project will disentangle the role of corporate income tax incentives from that of personal income tax incentives in determining the pattern of profit allocation within the MNC.