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Corporate Profit Misalignment: Evidence from German Headquarter Companies and Their Foreign Affiliates

Author

Listed:
  • Petr Jansky

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

  • Sarah Godar

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic
    Berlin School of Economics and Law, Berlin)

Abstract

Despite numerous data challenges, economists have established that the multinational corporations´ reported profits are not well aligned with their economic activity across countries. However, uncertainties remain about the extent and patterns of this misalignment. We fill in this gap for German-based multinational corporations and their foreign affiliates. We use the data collected by the Deutsche Bundesbank, which include confidential data on foreign direct investments and a combination of confidential and publicly available balance sheet data. We find that the world´s tax havens attract a considerably higher share of German multinational corporations´ profit than economic activity, while in Eastern European countries, most developing countries and some big European countries reported profits are much lower than economic activity would suggest. We also find that the most important tax haven is the Netherlands, followed by other EU tax havens of Cyprus, Ireland, Luxembourg and Malta.

Suggested Citation

  • Petr Jansky & Sarah Godar, 2020. "Corporate Profit Misalignment: Evidence from German Headquarter Companies and Their Foreign Affiliates," Working Papers IES 2020/37, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2020.
    • Handle: RePEc:fau:wpaper:wp2020_37
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    File URL: https://ies.fsv.cuni.cz/sci/publication/show/id/6293/lang/en
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    Cited by:

    1. Kasper Brandt, 2020. "Illicit financial flows and the Global South: A review of methods and evidence," WIDER Working Paper Series wp-2020-169, World Institute for Development Economic Research (UNU-WIDER).
    2. Nerudova, Danuse & Dobranschi, Marian & Solilová, Veronika & Litzman, Marek, 2023. "Onshore and offshore profit shifting and tax revenue losses in the European Union," Economic Modelling, Elsevier, vol. 119(C).

    More about this item

    Keywords

    multinational corporations; profit misalignment; tax havens; Germany;
    All these keywords.

    JEL classification:

    • 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

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