Tax Planning Through Advanced Tax Rulings–An Exploratory Analysis Using the Luxembourg Tax Leaks

We use Luxembourg advanced tax rulings (ATRs) to provide readers with insight into the nature of tax planning that uses ATRs. Accordingly, we descriptively examine this sample of leaked Luxembourg ATRs and evaluate the determinants and outcomes associated with requesting a Luxembourg ATR. We find that the determinants of requesting an ATR differ between financial services firms and industrial firms. We document a positive spillover market reaction to non-ATR firms sharing characteristics of ATR firms. While prior research documents a positive association between ATRs and tax avoidance, we fail to document a significant relations between ATRs and tax risk. We do, however, find that firms that are required to disclose unrecognized tax benefits in their financial statements record higher UTBs after requesting an ATR, which suggests that ATRs may lead to higher uncertainty in jurisdictions not covered by the ATR itself. Our research provides insight into transactions used by MNEs to move income through organizations.