1. Presentation to the International Tax Policy Forum October 3, 2008
Does the Domicile of a Multinational Affect its Worldwide
Corporate Income Tax Liability?
Kevin Markle and Douglas A. Shackelford University of North Carolina at Chapel Hill
Presentation to the International Tax Policy Forum
October 3, 2008

2. Presidential debate, September 26, 2008
McCAIN: “Right now, American business pays the second-highest business taxes in the world, 35 percent. Ireland pays 11 percent. “Now, if you're a business person, and you can locate any place in the world, then, obviously, if you go to the country where it's 11 percent tax versus 35 percent, you're going to be able to create jobs, increase your business, make more investment, et cetera. “I want to cut that business tax. I want to cut it so that businesses will remain in -- in the United States of America and create jobs.”

3. Presidential debate, September 26, 2008
OBAMA:
“Now, John mentioned the fact that business taxes on paper are high in this country, and he's absolutely right. Here's the problem: There are so many loopholes that have been written into the tax code, oftentimes with support of Senator McCain, that we actually see our businesses pay effectively one of the lowest tax rates in the world.”

4. Research questions
Are the average effective tax rates for domestics and multinationals within a country different?
Are the average effective tax rates of multinationals different across countries?

5. Summary of findings AETRs fell by ~20% over the 23 years (1984-2006).
Country AETR order constant over time.
Japan, Germany, and France have the highest AETRs
Bermuda has the lowest AETR.
Australia, Canada, and Singapore became relatively low- tax countries.

6. Summary of findings US and UK corporations have average AETRs.
US and UK multinationals have much higher AETRs than their domestics.
The US and UK multinational increments remain quite constant even as AETRs declined.
US domestic AETRs vary much more across industries than do US multinational AETRs.

7. Empirical methods Estimate the following regression β0 = domestic AETR
β1 = incremental multinational AETR
β0 + β1 = total multinational AETR

8. Empirical methods Tax measures Current tax expense Total tax expense
Income measures
NIBT
Adjusted net income = NIBT plus
Revenue

9. Data Compustat Osiris Tax Total Current ADJNI = NIBT + Depreciation
R&D
Pension
Multinational if
Foreign tax expense or foreign profits (US-Canada)
Foreign sub
Determination made
Annually
In 2006

10. Multinational
AETR
Domestic AETR

13. Germany US UK
Bermuda