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Multinational Corporations and Tax Havens: Evidence from Country-by-Country Reporting

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  • Javier Garcia-Bernardo

    (University of Amsterdam, Faculty of Social and Behavioural Sciences, Spui 21, 1012 WX Amsterdam, The Netherlands)

  • Petr Jansky

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)

  • Thomas Torslov

    (Faculty of Social Sciences, Oster Farimagsgade 5, DK-1353 Copenhagen K, Denmark)

Abstract

A growing body of economics literature shows that multinational corporations (MNCs) shift their profits to tax havens. We contribute to this evidence by comparing a range of available data sets focusing on US MNCs, including country-by-country reporting data which has been released in December 2018 for the first time. With each of the datasets, we analyse the effective tax rates that US MNCs face in each country and the amount of profits they report. Using country-by-country reporting data, we have been able to establish that lower effective corporate tax rates are associated with higher levels of reported profits when compared with different indicators of real economic activity. This corresponds to the notion that MNCs often shift profits to countries with low effective tax rates – without also shifting substantive economic activity. Consequently, we identify the most important tax havens for US MNCs as countries with both low effective tax rates and high profits misaligned with economic activity.

Suggested Citation

  • Javier Garcia-Bernardo & Petr Jansky & Thomas Torslov, 2019. "Multinational Corporations and Tax Havens: Evidence from Country-by-Country Reporting," Working Papers IES 2019/31, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2019.
    • Handle: RePEc:fau:wpaper:wp2019_31
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    Cited by:

    1. Petr Prochazka & Iveta Cerna, 2022. "Reinvestment and effective corporate income tax rates in V4 countries," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(3), pages 581-605, September.
    2. Michael Overesch & Leon G. A. Reichert & Georg Wamser, 2023. "The Effects of the Tax Cuts and Jobs Act on the Tax-Competitiveness of Multinational Corporations," CESifo Working Paper Series 10310, CESifo.
    3. Fuest, Clemens & Hugger, Felix & Neumeier, Florian, 2022. "Corporate profit shifting and the role of tax havens: Evidence from German country-by-country reporting data," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 454-477.
    4. Alex Cobham & Petr Janský & Chris Jones & Yama Temouri, . "An evaluation of the effects of the European Commission's proposals for the Common Consolidated Corporate Tax Base," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    5. Dutt, Verena K. & Spengel, Christoph & Vay, Heiko, 2021. "The EU proposal for country-by-country reporting on the internet: Costs, Benefits and Consequences," Studien, Stiftung Familienunternehmen / Foundation for Family Businesses, number 250025, June.
    6. Müller, Raphael & Spengel, Christoph & Vay, Heiko, 2020. "On the determinants and effects of corporate tax transparency: Review of an emerging literature," ZEW Discussion Papers 20-063, ZEW - Leibniz Centre for European Economic Research.
    7. Olbert, Marcel & Spengel, Christoph & Weck, Stefan, 2023. "Multinational firms in tax havens: Corporate motives, regulatory countermeasures, and recent statistics," ZEW Discussion Papers 23-036, ZEW - Leibniz Centre for European Economic Research.
    8. Javier Garcia-Bernardo & Petr Janský & Thomas Tørsløv, 2021. "Multinational corporations and tax havens: evidence from country-by-country reporting," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(6), pages 1519-1561, December.
    9. Garcia-Bernardo, Javier & Janský, Petr, 2024. "Profit shifting of multinational corporations worldwide," World Development, Elsevier, vol. 177(C).
    10. Murphy Richard & Janský Petr & Shah Atul, 2019. "BEPS Policy Failure—The Case of EU Country-By-Country Reporting," Nordic Tax Journal, Sciendo, vol. 2019(1), pages 63-86, January.
    11. Bruno Casella & Baptiste Souillard, . "A new framework to assess the fiscal impact of a global minimum tax on FDI," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    12. Hackett, Franki & Janský, Petr, 2023. "Incremental improvement: Evaluating the emancipatory impact of public country-by-country reporting," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 96(C).
    13. Dutt, Verena & Spengel, Christoph & Vay, Heiko, 2021. "Der EU-Vorschlag zum Country-by-Country Reporting im Internet: Kosten, Nutzen, Konsequenzen," Studien, Stiftung Familienunternehmen / Foundation for Family Businesses, number 250010, June.
    14. Javier Garcia-Bernardo & Petr Janský & Thomas Tørsløv, 2022. "Decomposing Multinational Corporations’ Declining Effective Tax Rates," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(2), pages 338-381, June.
    15. Miguel Viegas & António Dias, 2021. "Country-by-Country Reporting: A Step Towards Unitary Taxation?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 56(3), pages 167-173, May.
    16. DOBRESCU, Edith Mihaela & DOBRESCU, Emilian M., 2021. "Free Trade Areas And The Fiscal Haven," Journal of Financial and Monetary Economics, Centre of Financial and Monetary Research "Victor Slavescu", vol. 9(1), pages 23-29, October.
    17. Li, Shenyu & Popkowsky Leszczyc, Peter T.L. & Qiu, Chun, 2023. "International retailer performance: Disentangling the interplay between rule of law and culture," Journal of Retailing, Elsevier, vol. 99(2), pages 193-209.

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    More about this item

    Keywords

    Effective tax rate; profit shifting; tax haven; country-by-country reporting; multinational enterprise; foreign direct investment; tax competition;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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