The effects of United States tax policy revisions on the patterns of persistent near-zero taxable income of foreign-controlled corporations

It is often alleged that U.S. multinational corporations reduce their taxes by artificially shifting income earned in the United States and other relatively high-tax countries to subsidiaries in low-tax countries. Manipulation of transfer prices has long been suspect to patterns of persistent near-zero taxable income. During the period from 1992 to 1994, important measures to limit income shifting were introduced into the tax law.; A review of the literature indicated that there are no studies that address the effects of the final tax regulations on transfer pricing and income shifting. This study examined if the pattern of income shifting has changed subsequent to the tax policy changes, specifically, the final transfer pricing regulations of 1994, by investigating the patterns of tax payments of large, foreign-controlled domestic corporations within the manufacturing and wholesale industries.; The research focused on the effects of significant tax law changes relating to transfer-pricing issues and established if the amount of taxes paid was attributed to transfer-pricing strategies to shift income out of the U.S. The study showed that there was a significant difference in the percentage of taxes paid and provides empirical evidence of income shifting by these large, foreign-controlled corporations. The study also concluded that U.S. tax policy changes had a positive effect on corporate behavior as explained by the changes in the patterns of tax payments. However, the prevalence of near-zero taxable income remained unchanged.