Profit Shifting and Earnings Management through Tax Haven Subsidiaries: An Exploratory Analysis of Multinational Companies

Borderless global trading activities provide opportunities for multinational companies (MNCs) to practice tax avoidance and tax evasion. MNCs with tax haven subsidiaries have higher tendency to shift profits to their subsidiaries. Therefore, this study observes the MNCs and their tax characteristics. Out of 60 MNCs, 56 companies have subsidiaries in tax haven. Analysis shows that MNCs with subsidiaries in tax haven territories, reported lesser profits and paid lesser taxes. The findings confirm that MNCs with tax haven advantage, engage in profit shifting more extensively than MNCs without tax haven links. Therefore, this study highlights on the need to further investigate on this issue to mitigate profit shifting.