Check the Box - The Stock Market Reaction to Its Effect on U.S. Mutinational's Tax Rates

• In Event: Taxation Policy and Perspectives

Abstract

This paper examines differences in effective tax rates for U.S. multinationals with tax haven operations in the pre- and post-check the box (CTB) period. Using publicly available information and the methodology from Dyreng and Lindsay (2009), I estimate the difference in the worldwide (federal) current effective tax rates on worldwide (foreign) income for multinationals between the pre- and post-CTB period. I find that U.S. multinationals with tax haven operations report lower (higher) worldwide (federal) current tax rates in the post-CTB period when compared to the pre-CTB period suggesting that U.S. multinationals engage in more effective foreign tax planning in the post-CTB period. Given these results I examine whether investors reacted to announcements regarding the implementation of CTB specifically focusing on its application to foreign entities, I do not find evidence consistent with investors reacting to CTB news.

Author

• Andrew Duxbury, University of Connecticut