Treasure MAPs? How governmental cooperation shapes income shifting

An increase in globalization in recent decades has placed growing importance on intergovernmental cooperation. Firms increasingly must adjust their operations across multiple jurisdictions, with each jurisdiction having their own set of rules. I examine how firms change their tax strategy when governments have agreed to cooperate to resolve tax disputes between countries. The specific dispute resolution mechanism I study is a specific tax treaty provision, Mutual Agreement Procedures (MAPs), which allow governments to resolve certain tax disputes outside of the normal legal process. I document that firms that have access to these dispute resolution mechanisms engage in more tax avoidance behavior. This association is stronger for smaller firms that may be less able to take advantage of traditional unilateral resolution mechanisms. My results are important to regulators and policymakers as changes to Mutual Agreement procedures are currently being contemplated.