Tax Avoidance through Advance Tax Rulings – Evidence from the LuxLeaks Firms

Our empirical study tests the effect of special tax deals on tax avoidance by multinational corporations. In 2014, the International Consortium of Investigative Journalists published confidential documents identifying hundreds of firms worldwide that had benefited from advance tax rulings. We find that after engaging in an advance tax ruling in the tax haven Luxembourg, firms have lower worldwide effective tax rates than nonruling firms. The results are robust even if we mitigate a potential bias via propensity-score matching. Consequently, this study gives evidence for corporate tax avoidance through special tax deals in the form of advance tax rulings.