David LiuFollow

Date of Completion

Spring 4-28-2021

Thesis Advisor(s)

Steve Utke; Alina Lerman

Honors Major





I examine whether U.S. corporations can strategically organize global supply chains to achieve tax efficiency by creating or acquiring subsidiaries in Switzerland. In particular, I study if there is an association between a firm’s use of Swiss subsidiaries and the firm’s effective tax rate using a sample of firm years from 1998 to 2013. Under U.S. rules prior to the Tax Cuts and Jobs Act of 2017 (TCJA), firms with subsidiaries in low-tax-rate foreign countries (e.g., Switzerland) could generally avoid U.S. tax on foreign income by not repatriating income. The 2014 Caterpillar Inc. case study offers an example of how corporations may derive tax benefits from Swiss subsidiaries. Consistent with the implications of the case study and opportunities presented by pre-TCJA rules, I find that corporations with at least one Swiss subsidiary generally have lower effective tax rates than corporations without any subsidiaries in Switzerland. Furthermore, the degree of these effective tax rate effects vary by industry. I also analyze pre-tax supply chain costs (e.g., duties, tariffs, and transportation-type costs) and find that firms with at least one Swiss subsidiary have a lower average cost of goods sold divided by total assets ratio than the average ratio of firms without at least one Swiss subsidiary. This is consistent with the notion that analyzing supply chain tax efficiency must consider the net effects of pre-tax supply chain costs and tax liabilities. Broadly, my study contributes evidence of the value of studying corporations’ tax planning and supply chain management practices in conjunction.

Included in

Accounting Commons