Shareholders’ tax incentives and changes in the organizational form of foreign operations
- Authors
- Chung, Heesun; Choi, Sunhwa
- Issue Date
- Sep-2022
- Publisher
- Elsevier Inc.
- Keywords
- Corporation; Multinational business; Organizational form change; Pass-through entity; Shareholder-level tax; Tax incentive
- Citation
- Journal of Accounting and Public Policy, v.41, no.5, pp.1 - 29
- Indexed
- SSCI
SCOPUS
- Journal Title
- Journal of Accounting and Public Policy
- Volume
- 41
- Number
- 5
- Start Page
- 1
- End Page
- 29
- URI
- https://scholarworks.bwise.kr/hanyang/handle/2021.sw.hanyang/186190
- DOI
- 10.1016/j.jaccpubpol.2022.106994
- ISSN
- 0278-4254
- Abstract
- This study examines whether the tax incentives of home-country shareholders influence the organizational form changes of foreign operations. While a corporation and a limited company (LC) in South Korea are treated the same for Korean tax purposes, an LC can be treated as a pass-through entity for U.S. tax purposes. This tax treatment of LCs can create incentives for U.S. owners to convert their Korean corporations to LCs. We find that private corporations owned by U.S. shareholders are more likely to convert to LCs than those owned by non-U.S. shareholders. We also find that the tax costs and benefits of conversion affect the likelihood of LC conversion for U.S.-owned firms. Overall, our results suggest that multinational corporations use organizational form changes as a tool for international tax strategies.
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