Essays on corporate taxation

This thesis aims to advance our understanding of corporate taxes and their effects on firm behaviour, particularly with regard to tax avoidance and investment, as well as how countries fight tax evasion and avoidance. Each chapter provides a distinct contribution to the corporation tax literature.
The first two chapters analyze the corporate tax payments of companies residing in the United Kingdom using confidential corporate tax returns data. Chapter 1 focuses on comparisons between various company-ownership types, distinguishing in particular between multinational and domestic companies. I find that multinational companies, in spite of constituting only 3 percent of the population of UK companies, pay the majority of UK corporation tax, around 55 percent on average, during the period 2000 - 2011. However, multinational companies pay a very small amount of tax relative to their size, in comparison to domestic companies, and the share of UK corporation tax paid by multinational companies has declined over the period.
Chapter 2 shows that there are systematic differences in how much taxable profits multinational and domestic companies report. Specifically, using comparable samples selected by propensity score matching, I estimate that UK subsidiaries of foreign multinationals report a 50 percent lower ratio of taxable profits to total assets than comparable domestic standalones. This difference is almost entirely attributable to the fact that a higher proportion of foreign multinational subsidiaries report zero taxable profits (59.2 percent) than domestic standalones (27.5 percent). A high share of foreign multinational subsidiaries are found to report zero taxable profits persistently over time, and high leverage is found to play an important role in producing this outcome. This suggests a very aggressive form of profit shifting for many of these foreign multinational companies.
Chapter 3 investigates how investment responds to tax incentives. In particular, using the announcement and subsequent implementation of an exogenous tax reform in Canada as a quasi-natural experiment, I consider the effect of a temporary and unexpected increase in the cost of capital for a group of firms (income trusts) which had (for tax reasons) limited availability of retained earnings as a source of finance for investment. I show that these firms did not respond to the cost of capital increase during the period when they had limited availability of retained earnings. In turn, a subsequent increase in the availability of internal finance, prompted by the implementation of the tax reform in 2011, is shown to increase their investment substantially. These findings suggest that financing constraints on investment may have been binding for these firms.
Chapter 4 discusses the exchange of tax information between tax havens and OECD countries. Together with Clemens Fuest, we analyze how tax havens have chosen their partner countries to sign tax information exchange agreements (TIEAs) with and hence comply with OECD standards. We find that tax havens have on average signed more TIEAs with countries to which they have stronger economic links. However, this does not mean that they exchange tax information with all important partner countries.

Keywords: corporate taxation
Advisor: Bond, S
Devereux, M