Earlier this week, we enjoyed another interesting workshop at the Hastings Traynor Summer Program.  Eric Allen, a PhD candidate at Haas Business School, and Susie Morse, a Hastings tax professor, presented their paper Firm Incorporation Outside the U.S.: No Exodus Yet.  Here is the abstract:

As one tax director told the Senate Finance Committee in 1999, the U.S. tax rules for multinationals with a U.S.-incorporated parent are onerous enough that even a U.S.-based company like Intel might sensibly choose to incorporate its parent outside the U.S, presumably in a tax haven jurisdiction.  Is the recent positive trend in the proportion of U.S.-listed initial public offering firms incorporating outside the U.S. enough evidence to suggest that corporations are heeding the substance of that tax director’s advice?  Our results indicate that it is not.  Only 178 firms, or about 2.3% of our sample of 7583 IPO firms from 1980 to 2009, incorporated outside their headquarters jurisdiction, and of these firms only 28 were headquartered in the U.S.  While there is a noticeable recent increase in the proportion of issuers conducting U.S.-listed IPOs that incorporated in tax havens, our results indicate that firms headquartered in China and Hong Kong drive this trend.  We do not observe a mass exodus of U.S.-headquartered firms incorporating in tax haven jurisdictions.  However, we examine the few that do make that decision and describe some of their distinguishing characteristics.  

Eric and Susie’s study suggests that overwhelmingly US companies conducting US-based IPOs do not view the tax benefits of incorporating outside the US to be the worth the costs.  Whether that is because these companies perceive the benefits to be low (maybe because they have found other effective ways to minimize their tax burden, or fear that incorporation outside the US may not successfully prevent the long arm of Uncle Sam from reaching them), or because they perceive the costs to be high (for example, losing Delaware corporate law and the institutions that accompany it, or attracting negative media attention), or perhaps both, are intriguing questions that their study calls into focus.  

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