Universität zu Köln

Reichert, Leon Gerhard Alfred ORCID: 0000-0001-7417-8221 (2024). Essays on Tax Avoidance and Tax-Competitiveness of U.S. and European Firms. PhD thesis, Universität zu Köln.

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Abstract

This thesis provides new insights into the relationship between tax avoidance and the tax-competitiveness of firms in the U.S. and Europe. It reveals that U.S. managers place significantly greater emphasis on tax avoidance than their European counterparts, which contributes an additional explanation for the tax differentials between U.S. and European firms. Further, the thesis provides an analysis of the impact of recent tax reforms in the U.S. and Europe on the heterogeneity in tax avoidance and tax-competitiveness of affected firms. Therefore, providing new insights into the tax differentials of U.S. and European firms. This is of particular interest to policymakers because the thesis shows how tax policies have affected firms' tax avoidance and how tax-competitiveness, which is often overlooked, has changed over time. Chapter 2 analyzes a U.S. management approach to tax issues with a particular emphasis on tax avoidance, expanding the tax avoidance and tax-competitiveness literature. The findings show significant decreases in the ETRs of European firms that hire an executive directly from the U.S. This effect is even more pronounced if the executive previously worked at a particular tax-avoidant U.S. firm. The decline in the ETRs by approximately 4 percentage points corresponds to an average annual tax saving of about $10.5 million. The study suggests that managers tend to adopt the U.S. management approach from their previous employer and apply it in other countries. The results are consistent across additional tests, but they also indicate that the U.S. management approach is not viable in the long term. Finally, the U.S. management approach identified provides a potential explanation for parts of the tax differentials between U.S. and European firms. Chapter 3 analyzes the effects of the U.S. tax reform of 2017 on the tax avoidance behavior of U.S. MNCs and the implications for the tax-competitiveness between U.S. and European competitor-firms. The essay demonstrates that, on average, the TCJA improves the tax-competitiveness of U.S. MNCs. These firms experience an average decrease of 7.5 percentage points in their GAAP ETRs and an increase in their tax-competitive advantage of about 4.2 percentage points. However, the study shows that the positive effects of the reform decrease as the share of foreign activities increases. An additional analysis indicates that the profit shifting behavior of U.S. MNCs did not change due to the TCJA. However, the findings are consistent with prior literature in showing that if U.S. MNCs are affected by the new anti-tax avoidance provisions GILTI, they benefit less from the positive reform effect. Thus, this chapter provides new insights into the effects of the tax reform on the tax avoidance behavior of U.S. MNCs and the tax-competitiveness between U.S. and European competitor-firms. Chapter 4 expands the analyses in chapter 3 to a longer time horizon and broadens the matching approach by using clustering methods to identify levels of tax avoidance in Europe and the U.S. This chapter is a significant addition to the analysis of the tax-competitive position of firms. The use of clustering in addition to the matching approach provides more informative value by considering not only an average for all firms, but also the heterogeneity in tax avoidance in the home country. The analyses demonstrate that the implementation of anti-tax avoidance rules can significantly impact the tax-competitive position of firms. However, this chapter supports the findings from chapter 3 and suggests that U.S. firms gained a significant tax-competitive advantage after the TCJA. However, U.S. firms competing with European tax avoiders face a tax disadvantage. Interestingly, some European firms are able to avoid the application of the ATADs. These findings are crucial for policymakers. This paper suggests that the TCJA was successful in achieving its main goal. Overall, U.S. firms have gained a tax-competitive advantage. Despite the negative impact of anti-tax avoidance provisions such as GILTI or BEAT on U.S. tax avoiders, they still maintain their tax-competitive advantage. In contrast, the findings suggest that most European firms are at a tax disadvantage. However, this chapter demonstrates that over the last decade, there is a group of more than 100 European firms that have continued to engage in high levels of tax avoidance, despite recent anti-tax avoidance provisions such as the ATADs. Those high European tax avoiders maintain a tax-competitive advantage. Overall, this thesis provides new insights on tax avoidance and tax-competitiveness of U.S. and European firms, which are of particular interest to international policymakers. It demonstrates that the U.S. management approach to tax issues has a significant impact on the ETRs of firms and may be another explanation for the tax differentials between U.S. and European firms. The thesis demonstrates that, despite being impacted by anti-tax avoidance provisions under the TCJA, U.S. firms gain a tax-competitive advantage over their European competitors on average after the TCJA. However, it shows that the magnitude of the effects on tax-competitiveness vary depending on a firm's level of tax avoidance. Chapter 4 suggests that the TCJA successfully achieved one of its main goals, which was to strengthen the competitiveness of U.S. firms while also curbing international tax avoidance. However, in Europe, only high tax avoiders who were able to remain unaffected by recent anti-tax avoidance provisions maintain a tax-competitive advantage over their U.S. competitors.

Item Type:	Thesis (PhD thesis)
Creators:	Creators Email ORCID ORCID Put Code Reichert, Leon Gerhard Alfred UNSPECIFIED orcid.org/0000-0001-7417-8221 UNSPECIFIED
URN:	urn:nbn:de:hbz:38-731657
Date:	2024
Language:	English
Faculty:	Faculty of Management, Economy and Social Sciences
Divisions:	Faculty of Management, Economics and Social Sciences > Business Administration > Accounting and Taxation > Professorship for Business Administration and Business Taxation
Subjects:	Economics Management and auxiliary services
Uncontrolled Keywords:	Keywords Language tax avoidance, executive change, effective tax rate, propensity score matching, tax reform, tax-competitiveness, profit shifting, Tax Cuts and Jobs Act, anti-tax avoidance rules, ATAD English Steuervermeidung, Managerwechsel, effektiver Steuersatz, Propensity Score Matching, Steuerreform, Steuerwettbewerbsfähigkeit, Gewinnverschiebung, Gewinnverlagerung, Tax Cuts and Jobs Act, Anti-Steuervermeidungsregeln, ATAD German
Date of oral exam:	25 June 2024
Referee:	Name Academic Title Overesch, Michael Prof. Dr. Homburg, Carsten Prof. Dr.
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/73165