A Review of International Management Research on Corporate Taxation.
| Verfasser | Eerola, Aleksi |
1 Introduction
Since corporate tax rules historically have been determined at the national level and have been aligned only partly through international tax treaties, firms have long been able to exploit international differences in these rules to their advantage (McGaughey & Raimondos, 2019; Ting & Gray, 2019). Firms' engagement in such 'tax arbitrage' has been further amplified by the wave of trade and investment liberalization that has swept through large parts of the world over the past few decades, as such liberalization has made it easier for firms to establish foreign entities and shift funds and intangibles across countries (Jones & Temouri, 2016; UNCTAD, 2020). For instance, Apple managed to reduce the effective tax rate on its Ireland-registered profits outside the Americas from an already low 1% in 2003 to a mere 0.005% in 2014 (CNN, 2016; Ting & Gray, 2019), whereas Google moved 21.8 billion euros to Bermuda in 2018 through its Dutch holding company, up from 19.9 billion in 2017 (Reuters, 2019). In total, corporate tax arbitrage has been estimated to render an annual loss of government revenues in the range of 500 to 650 billion dollars (Tax Justice Network, 2017a).
The increasing intensity with which firms engage in tax arbitrage has caused such arbitrage to be scrutinized more closely by both regulators and the media (Alexander, 2013; Economist, 2021b). For instance, whereas the Irish government approved Apple's Irish tax practices, the EU Commission judged them to amount to illegal state aid and therefore ordered the firm to pay 13 billion euros in back taxes (Wall Street Journal, 2016). This ruling was overturned in 2020 by the EU's General Court, which found insufficient evidence that the Irish government and Apple broke EU competition laws (BBC, 2020). The case attracted huge media attention (New York Times, 2017), as did plans by The Stanley Works in 2002 and Walgreens in 2014 to move their tax residence from the US to Bermuda and Switzerland, respectively, leading both firms to withdraw their plans in fear of a US consumer boycott (Johnson & Holub, 2003; Financial Times, 2014).
As a result of these developments, taxes have become an increasingly important managerial issue in multinational enterprises (MNEs) and thus a topic of interest for international management (IM) studies. (1) Consequently, a sizeable number of such studies by now has analyzed various aspects of corporate taxation, but an overarching view of their research topics and findings has thus far been lacking, hindering scholars in developing a full understanding of the existing body of IM knowledge on the topic. At the same time, international corporate taxation has also been studied extensively in adjacent fields, as documented in several reviews that either exclusively or predominantly covered the economics, finance, and accounting literatures on tax avoidance (Beer et al., 2020; Hanlon & Heitzman, 2010), tax planning within MNEs (Cooper & Nguyen, 2020), and tax havens (Temouri et al., 2020). This begs the question how IM research on corporate taxation compares to its counterparts in these other fields, and where the opportunities for future IM studies on the topic are the greatest.
In this article we aim to address these issues by (i) providing an exploratory overview of the main foci and findings of IM studies of corporate taxation, (ii) outlining how these foci and findings compare to those of international corporate taxation studies in adjacent fields, and (iii) using these two sets of insights to propose an agenda for future IM research on corporate taxation. We believe these to be important endeavors because "the impact of base erosion [i.e., tax arbitrage] in global operations due to tax differences (...) and the impact on global strategy, structure, and interactions with governments and public policy matters" has been identified as one of the "Grand Challenges" for the field of IM (Buckley et al., 2017, p. 1060). By taking stock of the literature and proposing a research agenda, our review forms a valuable foundation for addressing this challenge.
We find that extant IM research has focused on four types of tax-related acts--i.e., income shifting, international relocations of headquarters (HQs), internationalization of operational activities, and tax evasion--and identify three important avenues for future research. These avenues concern the use of better operationalizations of corporate income tax burdens and tax havens, the further study of the effects of tax-related formal and informal institutions, and the study of tax-related corporate political activity (CPA). More generally, our review shows that, rather than being a mere financial issue, international corporate taxation has various strategic, behavioral, and political dimensions that IM scholars can analyze further to continue to generate novel findings that complement those in adjacent fields.
2 Methodology
To identify extant IM research on corporate taxation, we conducted a keyword search in the 203 English-language journals appearing on the 2017 list of management journals compiled by InCites Journal Citation Reports as well as in several journals on the 2017 list of business journals that sometimes also publish IM studies, i.e. International Business Review, Journal of World Business, Journal of Business Research, Business and Society, and Business Horizons. To identify the relevant articles, we entered the terms "corporate tax", "taxation", "international + transfer pricing", "multinational + tax", "international + tax", "MNE + tax", "income shifting", and "tax evasion" in the search engines of the publishers of these journals. In addition, we examined the bibliographies of the identified articles for other relevant studies, using the 'snowball search technique' (Nielsen et al., 2017). These search efforts generated a few hundred articles, which we manually screened to select those that had a substantial focus on international corporate taxation. Statistical studies and literature reviews were considered to have such a focus and thus were selected when one or more of the analyzed variables (including control variables) were related to the taxation of firms in an international context, whereas conceptual articles and case studies were selected when aspects of such taxation constituted one of their main topics. Most of the identified articles that we decided to exclude focused on either personal taxation or domestic corporate taxation and thus lacked a corporate or international component (e.g., Bott et al., 2017; Clausing, 2016). Several other articles were excluded because they touched upon aspects of international corporate taxation only briefly, for instance in a single paragraph (e.g., Graham & Wyatt, 1999).
The above-described article screening and selection process resulted in a final set of 56 articles. For each article we then created a record indicating the type of article (empirical or conceptual), the theory or theories it used (if any), its empirical approach (when relevant), and its main topic and findings. Consistent with prior literature reviews (e.g., Jormanainen & Koveshnikov, 2012; Tang et al., 2021), we subsequently categorized the articles into a limited number of coherent groups, and structured our below literature overview accordingly. These groups, and the terminology we use to describe them, emerged organically from a comparative analysis of the main topics of the articles in which we searched for commonalities among these topics.
3 Literature Overview
3.1 Characteristics and Categorization of the Article Set
The 56 selected articles were published in 23 journals over the period 1978-2020. Table 1 displays their distribution across the journals and shows that most of them appeared in the Journal of International Business Studies (21%), the Journal of World Business (9%), and International Business Review (7%). Forty-two articles reported empirical studies, whereas the other 14 were purely conceptual studies such as discussion pieces and commentaries. Thirty-one articles (55%) applied one or several theories, in particular institutional theory (11 articles), the eclectic paradigm (8 articles), internalization/transaction cost theory (7 articles), and agency theory (3 articles), with other theories--such as Porter's (1990) diamond model of national advantage, political cost theory, contingency theory, and information processing theory--being applied only once. The 25 remaining articles (45%) did not refer to or implicitly use any particular theory.
Our comparative analysis of their research topics revealed that the articles can be categorized into four groups, with each group focusing on a different tax-related corporate act and three groups addressing several distinct subtopics. Table 2 lists these groups, acts, and subtopics, along with the number and percentage of articles belonging to each group. Below we provide an overview of their main foci and findings, and outline how these foci and findings compare to those of the international corporate taxation studies discussed in the earlier-mentioned reviews in the fields of economics, finance, and accounting.
3.2 Income Shifting
Like their counterparts in economics, finance, and accounting, the majority of IM studies of corporate taxation (52%) has focused on the phenomenon of income shifting, which refers to the transfer of corporate income from legal entities in jurisdictions with high corporate income tax rates to affiliates in jurisdictions with lower such rates (OECD, 2019). Such shifting is enabled by the long-established global principle that a firm's affiliates are taxed separately according to the rate applying in their respective jurisdictions (Economist, 2021b), a principle sometimes referred to as 'Separate Accounting' (Foss et al., 2018; McGaughey & Raimondos, 2019). Because of this principle, firms can increase their net profitability by allocating more...
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