Journal of Public Economics 2019 

Using a large panel dataset on worldwide operations of multinational firms, this paper studies one of the most advocated anti-tax-avoidance measures: Controlled Foreign Corporation rules. By including income of foreign low-tax subsidiaries in the domestic tax base, these rules create incentives to move income away from low-tax environments. Exploiting variation around the tax threshold used to identify low-tax subsidiaries, we find that multinationals redirect profits into subsidiaries just above the threshold and change incorporation patterns to place fewer subsidiaries below and more above the threshold. Roughly half of the resulting increase in global tax revenue accrues to the rule-enforcing country.


(with P. Mavrokonstantis)  R&R Journal of Public Economics 

We study behavioural responses to a widely-used tax enforcement policy that combines elements of self- and third-party reporting. Taxpayers self-report to the tax authority but must file documentation issued by a third-party to corroborate their claims. Exploiting salary-dependent cutoffs governing documentation requirements when claiming deductions for charitable contributions in Cyprus, we estimate that deductions increase by £0.7 when taxpayers can claim £1 more without documentation. Second, using a retroactive reform, we estimate that at least 64% of the response is purely a reporting adjustment representing tax evasion. Finally, reporting rules drive the behaviour of a large group of taxpayers who display little responsiveness to financial incentives for giving

Tax Enforcement with Multiple Evasion Technologies

(with N. Johannesen, University of Copenhagen)

In standard models of tax enforcement with a single evasion technology, stricter enforcement unambiguously leads to less evasion and more revenue. We show that in the presence of multiple evasion technologies, stricter tax enforcement may lead to more tax evasion and it may be associated with a loss of government revenue and lower welfare. Intuitively, increasing the probability of detecting one of the evasion technologies, induces some firms to switch to the other evasion technology. If the latter technology is more expensive but allows for more evasion, then this behavioural effect may dominate other effects and evasion may increase while revenue drops.


Multinationals and international intra-firm insurance

(with J. Miethe, LMU Munich )  - Early results available upon request

This paper investigates whether the existence of an internal capital market increases resilience of multinational affiliates during economic downturns. Does the international reach of the multinational firm create more flexible access to credit, particularly in times of credit shortage, and does this affect performance throughout a crisis? We combine multiple sources of entity level panel data and compare the borrowing and lending patterns of affiliates of multinational enterprises to the patterns of comparable domestic firms at the onset of a financial crisis. We first document large differences in the financing patterns of multinational affiliates and domestic entities in response to the global financial crisis of 2008. Evidence suggests that multinationals directed credit towards the headquarter in response to this crisis, causing a large drop in credit of foreign affiliates relative to comparable domestic entities. Interestingly, we do not find these patterns when looking at national crises, suggesting that the flexibility of the internal capital market allows multinationals to react differently to global versus national crises.    

Internal Banks of Multinational Enterprises in Tax Havens

(with J. Miethe, LMU Munich)

From National to Multinational Firm: Main Drivers and Consequences

Multinational corporations today account for a third of worldwide output and close to a fourth of employment (OECD, 2018). What is driving this surge in firms that cross borders, and how does it affect domestic economies? Using comprehensive panel data on the organisational structure of UK firms, as well as investment and financials data, we address these questions in detail. We look specifically at the drivers of the choice to become multinational, and the role of fiscal incentives and tax policy in this choice.


(with Michael P. Devereux, François Bares, Judith Freedman, İrem Güçeri, Martin McCarthy, Martin Simmler and John Vella)

The OECD’s “Global Anti-Base Erosion” (GloBE) proposal was formally introduced in January 2019 as part of a consultation on “Addressing the Tax Challenges of the Digitalisation of the Economy” (OECD, 2019a). The main element of the proposal is an “income inclusion rule" that would tax the income of a foreign branch or a controlled entity if that income was subject to a low effective tax rate in the jurisdiction of establishment or residence” (OECD, 2019b, p.25). It gives the government of a parent company the right to tax that income – irrespective of whether that income might be considered to be generated in that country. The income inclusion rule is a form of minimum tax. Below, we consider the objectives of the GloBE proposal, and ask three questions: (i) whether the objectives are justified; (ii) whether the proposed reform achieves these objectives; and (iii) whether other possible reforms might achieve these objectives more successfully.

Oxford University, Centre for Business taxation - January 2020 Policy report.

© 2020 Sarah Clifford