images (1)This study extends our understanding of cross-jurisdictional tax planning by documenting reporting patterns in insurers’ state annual accounting reports that are consistent with tax-motivated income shifting. Specifically, our findings are consistent with property-casualty insurers avoiding state taxes through strategically allocating premiums and losses across the statutory reports they file with each state in which they operate. Although the paper’s primary inference—that companies shift tax bases across jurisdictions through allocations of income and expenses among commonly-controlled companies—is similar to ones drawn from extant studies, its superior data enable a more powerful analysis of income shifting than has been previously possible. In addition, this paper is one of the first to identify the accounts through which income is shifted to avoid taxes.

Many prior studies (e.g., Klassen, et al. 1993; Harris 1993; Grubert, et al. 1993; Harris, et al. 1993; Jacob 1996; Collins and Shackelford 1997, Collins, Kemsley, and Lang 1997) produce indirect evidence consistent with income shifting. They infer multijurisdictional behavior from a single government’s data (either publicly available SEC filings or confidential U.S. corporate income tax returns) and report associations between income and tax rates. Although several studies produce evidence consistent with income shifting, few specify how firms avoid taxes, leaving open the possibility that their results hinge on the omission of non-tax considerations that are correlated with taxes. credit