Sarah Clifford

"The effect of border-crossing taxation on financial- and locational choices of Multinationals - a global perspective on CFC legislation"


Multinational corporations have considerable scope in determining the geographical location of income and this potentially leaves the corporate tax base of high tax countries vulnerable. An essential question when designing tax systems therefore becomes how and if to tax the foreign income of domestic corporations.

This project looks at an anti-tax-avoidance measure: controlled foreign corporation (CFC) rules, and the impact of this residential approach to international taxation on the financing and locational decisions of multinationals. We find that multinationals exhibit clear strategical behavior in response to these rules - both on the intensive margin by shifting income to higher tax environments and on the extensive margin by placing subsidiaries outside the reach of the rules. The direction of the response implies higher tax levels on the targeted income, and consequently an increase in global corporate tax revenues.