TAXGLOBAL – Examining the effect of foreign tax reforms on Norwegian firms

29 April 2021 11:00

TAXGLOBAL – Examining the effect of foreign tax reforms on Norwegian firms

TAXGLOBAL, a new project at the Norwegian Centre for Taxation, examines the cross-border effect of corporate taxation on economic activity using granular administrative data from Norway.

The project is funded by the European Commission’s Horizon 2020 program and has been awarded one of the prestigious Marie Curie Fellowships. TAXGLOBAL combines information about Norwegian firms’ foreign operations with institutional knowledge about tax reforms in the foreign countries where these firms are active. In the empirical analysis, we then examine how Norwegian firms respond to tax reforms in the countries of their subsidiaries. Furthermore, TAXGLOBAL also considers cross-border links of Norwegian firms via foreign shareholders.

This empirical research project provides important evidence to inform the ongoing debate on how to tax multinational firms in a globalized world. Recently, the 2017 tax reform in the United States is supposed to have large effects on businesses in an interconnected, globalized world: It substantially increased the profits of German carmakers while at the same time it is expected to lure away corporate investment from other countries. Countries in Europe are now working towards their own tax reforms (e.g. France, United Kingdom) in order to increase the competitiveness of local firms. However, decreases in government income from taxation will lead to a decrease in the provision of public services such as education and health, affecting in this way the development and prosperity of human capital.

Despite such effects and the wide-spread cross-border operations of firms, the lack of appropriate data has so far precluded a knowledge-based understanding of the international repercussions of corporate tax policies. Given that tax reform is high on the agenda in many countries, TAXGLOBAL thus provides much needed insights, in particular on a small open economy like Norway. Moreover, while the European countries aim at ensuring a smooth functioning of the common market within the European Economic Area by harmonizing product and labour market regulation, corporate tax policy remains under the sovereignty of individual governments which use it to compete for multinational firms’ operations. Against this background, it is essential to fully understand and quantify the cross-border impact of corporate tax policy in order to enhance job creation, sustainable investment and productivity growth in a globalized economy.

So far, TAXGLOBAL has gathered a large institutional database on tax reforms in all developed economies (including all EEA and OECD member states). It has also assembled administrative data on the foreign and domestic operations of Norwegian firms from SSB and Skattetaten. Both datasets have been linked firm-level accounting data from the Brønnøysundregistrene. All of these data have been de-identified to preserve confidentiality. In ongoing work, these datasets will be extended and complemented with more detailed information about the individual firms. In addition, information about individual shareholders, managers and employees of the Norwegian firms are currently added. This provides important insights into how foreign tax reforms affect inequality via the distribution of wealth and income within Norwegian firms. Is it mostly the managers of Norwegian firms that gain when one of their subsidiaries pays less tax? Or do employees also benefit? These are questions that TAXGLOBAL seeks to provide answers to. TAXGLOBAL will run until July 2022 and is lead by Maximilian Todtenhaupt, Assistant Professor at NHH.