Bauer Business Focus

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Taxing Multinational Corporations

Published on May 17, 2021
Novia Chen

Media attention over the last several years highlights a general concern that some multinational corporations may not be paying their fair share when it comes to taxes. Professor Novia Chen with the Bauer College of Business at the University of Houston explains how this happens.

“In the income tax schedule, there are kink points — or spots where tax rates jump — and taxpayers have incentives to report income just around these kinks. For corporations, the U.S. income tax schedule has a kink at zero taxable income, so multinationals can minimize taxes by shifting essentially all of their pretax earnings out of the U.S.”

“Focusing on multinationals reporting near zero domestic income identifies firms that appear to be tax aggressive, and these firms pay lower taxes, report higher foreign profits, and are more responsive to tax incentives.”

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