Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

What Drives Emerging Economies Firms to Invest In Tax Havens?

Author(s): Yosra Makni Fourati, Rafika MADHI, Ahmad Alqatan

This study aims to examine the incentives of multinational enterprises (MNEs) for setting up tax -haven subsidiaries. Based on the firm-specific advantage–country-specific advantage (FSA–CSA) framework, we have conducted our research hypotheses. Using a sample of 165 MNEs from six emerging countries spanning the years 2014-2016, we document that firms with greater investments in intangible assets have a higher likelihood of owning subsidiaries in tax havens. Concerning the home-country specific advantages, we provide evidence that firms are more likely to set up tax-haven subsidiaries when their home country has lower required book-tax conformity and a worldwide-tax system. With respect to the host-country advantages, we show that the lowest corporate-tax rate usually offered by tax havens constitutes a motivation for foreign MNEs to establish tax-haven subsidiaries. In summary, our findings indicate that firm's home-country tax system characteristics (a worldwide tax system, book-tax conformity) are seen as the most critical determinants for setting up tax- haven subsidiaries.

Get the App