Multinational Tax Planning: Foreign Tax Credit Limitations And Income Shifting
DOI:
https://doi.org/10.47747/jismab.v6i2.2720Keywords:
Foreign Tax Credit Limitations, Income Shifting, Perencanaan Pajak, Perusahaan MultinasionalAbstract
This study analyses the influence of Foreign Tax Credit (FTC) Limitations and Income Shifting on the taxation strategies of multinational companies using the Systematic Literature Review (SLR) method. This study categorises findings from 20 scientific articles into three main groups: research supporting the significant influence of FTC Limitations and Income Shifting on tax strategies, research finding no strong relationship between the two, and research identifying other factors contributing to multinational companies' tax planning. The results indicate that FTC Limitations encourage companies to use Income Shifting strategies to reduce their global tax liabilities. Practices such as transfer pricing, thin capitalisation, and the use of tax havens are often used to optimise tax payments. However, some studies indicate that domestic tax policies, corporate ownership structures, and international accounting standards also play an important role in corporate tax decisions. In addition, the lack of coordination in tax policies between countries creates loopholes that allow companies to exploit tax arbitrage
References
Amidu, M., Coffie, & W., Acquah, P. (2019). Transfer pricing, earnings management and tax avoidance of firms in Ghana. Journal of Financial Crime, 26(1), 235–259. https://doi.org/10.1108/JFC-10-2017-0091
Beer, S., & Loeprick, J. (2015). Taxing Income in the Oil and Gas Sector - Challenges of International and Domestic Pro fit Shifting. SSRN Electronic Journal, 2015. https://doi.org/10.2139/ssrn.2610558
Cheong, C., Lee, M., Weissmann, M. A. (2020). Credit access, tax structure and the performance of Malaysian manufacturing SMEs. International Journal of Managerial Finance, 16(4), 433–454. https://doi.org/10.1108/IJMF-08-2019-0308
Cooper, M., & Nguyen, Q. T. K. (2019). Understanding the interaction of motivation and opportunity for tax planning inside US multinationals: A qualitative study. Journal of World Business, 54(6). https://doi.org/10.1016/j.jwb.2019.101023
De Simone, L. (2013). Does a common set of accounting standards affect tax-motivated income shifting for multinational firms? Journal of Accounting and Economics, 61(1), 145–165. https://doi.org/10.1016/j.jacceco.2015.06.002
Dharmapala, D., & Riedel, N. (2012). Earnings Shocks and Tax-Motivated Income- Shifting : Evidence from European Multinationals Dhammika Dharmapala Earnings Shocks and Tax-Motivated Income- Shifting : Evidence from European Multinationals Abstract. https://doi.org/10.1016/j.jpubeco.2012.08.004
Dowd, T., Landefeld, & P., Moore, A. (2017). Profit shifting of U.S. multinationals. Journal of Public Economics, 148(January 2016), 1–13. https://doi.org/10.1016/j.jpubeco.2017.02.005
Edwards, A., & Todtenhaupt, M. (2020). Capital gains taxation and funding for start-ups. Journal of Financial Economics, 138(2), 549–571. https://doi.org/10.1016/j.jfineco.2020.06.009
Eisenhardt, K. M. (1989). Agency Theory : An Assessment and Review. Agency Theory : An Assessment and Review, 14(1)(1), 57–74. https://www.jstor.org/stable/258191
Ftouhi, K., & Ghardallou, W. (2020). International tax planning techniques: a review of the literature. Journal of Applied Accounting Research, 21(2), 329–343. https://doi.org/10.1108/JAAR-05-2019-0080
Fuest, C., Hugger, F., & Neumeier, F. (2022). Corporate profit shifting and the role of tax havens: Evidence from German country-by-country reporting data. Journal of Economic Behavior and Organization, 194(January), 454–477. https://doi.org/10.1016/j.jebo.2021.11.016
Hong, Q., & Smart, M. (2010). In praise of tax havens: International tax planning and foreign direct investment. European Economic Review, 54(1), 82–95. https://doi.org/10.1016/j.euroecorev.2009.06.006
Jalan, A., & Vaidyanathan, R. (2017). Tax havens: conduits for corporate tax malfeasance. Journal of Financial Regulation and Compliance, 25(1), 86–104. https://doi.org/10.1108/JFRC-04-2016-0039
Jensen, C. M., & Meckling, H. W. (1976). Theory Of The Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics 3, 3, 305–360. https://doi.org/10.1057/9781137341280.0038
Masri, I., Syakhroza, A., & Samingun. (2019). The role of tax risk management in international tax avoidance practices: Evidence from Indonesia and Malaysia. International Journal of Trade and Global Markets, 12(3–4), 311–322. https://doi.org/10.1504/IJTGM.2019.101561
Medioli, A., Azzali, S., Mazza, T. (2023). High ownership concentration and income shifting in multinational groups. Management Research Review, 46(1), 82–99. https://doi.org/10.1108/MRR-02-2021-0141
Merz, J., & Overesch, M. (2016). Profit shifting and tax response of multinational banks. Journal of Banking and Finance, 68(0), 57–68. https://doi.org/10.1016/j.jbankfin.2016.03.015
Muhammadi, A., Ahmed, Z., & Habib, A. (2016). Multinational transfer pricing of intangible assets: Indonesian tax auditors’ perspectives. Asian Review of Accounting, 24(3), 313–337. https://doi.org/10.1108/ARA-10-2014-0112
Mushtaq, M., Tahir, M., & Ibrahim, H. (2020). Impact of Repatriation Taxes and Earned/Contributed Capital Mix on Dividend Repatriation Policy: The Moderating Role of Firm Financial Maturity. International Journal of Monetary Economics and Finance, 13(2), 1. https://doi.org/10.1504/ijmef.2020.10029684
Olibe, K. O., & Razaee, Z. (2008). Income Shifting and Corporate Taxation: the role of cross-border intrafirm transfers. Review of Accounting and Finance, 7(1), 83–101. http://dx.doi.org/10.1108/14757700810853860
Otusanya, O. J & Lauwo, S. G. (2023). Tax Avoidance in Developing Countries: Evidence of MNCs in Sub-Saharan Africa. Department of Accounting 4(1), 1–23. https://pure.port.ac.uk/ws/portalfiles/portal/50755732/Tax_Avoidance_in_Developing_Countries_Evidence_from_MNCs_in_Sub_Saharan_Africa_Journal_of_Financial_Crimes.pdf
Sikka, P., & Willmott, H. (2010). The dark side of transfer pricing: Its role in tax avoidance and wealth retentiveness. Critical Perspectives on Accounting, 21(4), 342–356. https://doi.org/10.1016/j.cpa.2010.02.004
Wild, J. J., Wild, J., & Wild, K. L. (2023). International joint ventures, shareholder returns, venture complexity, and political risk. Journal of Corporate Accounting and Finance, 34(2), 135–148. https://doi.org/10.1002/jcaf.22600
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Mareta Putri, Belandina Anita Sere Sihombing, Luk Luk Fuadah
This work is licensed under a Creative Commons Attribution 4.0 International License.
Copyrights
Copyright for this article is retained by the author(s), with first publication rights granted to the journal.
This is an open-access article distributed under the terms and conditions of the Creative Commons Attribution license (http://creativecommons.org/licenses/by/4.0/ )
