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Tax-Haven Investors and Corporate Profitability - Evidence of Profit Shifting by German Affiliates of Multinational Firms

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  • Sarah Godar

Abstract

This paper uses confidential firm-level panel data to provide new estimates of corporate profit shifting by German affiliates of multinational corporations. The estimated semielasticity suggests that the profits of German affiliates are highly sensitive to foreign tax rate changes. The semielasticity is higher when at least one investor is located in a tax haven and is not significant when a company has never had a tax-haven investor. Using the tax attractiveness index as an alternative operationalization of the profit-shifting incentive yields similar but less robust results. The estimated effects are used to extrapolate aggregate revenue losses, which range between EUR 1.5 and 5.8 billion in 2016. The results suggest that ownership links to tax havens are an informative indicator of whether or not a company engages in international profit shifting.

Suggested Citation

  • Sarah Godar, 2021. "Tax-Haven Investors and Corporate Profitability - Evidence of Profit Shifting by German Affiliates of Multinational Firms," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 77(4), pages 345-375.
    • Handle: RePEc:mhr:finarc:urn:doi:10.1628/fa-2021-0013
    DOI: 10.1628/fa-2021-0013
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    Citations

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    Cited by:

    1. Katarzyna Bilicka & Evgeniya Dubinina & Petr Janský, 2022. "Fiscal consequences of corporate tax avoidance," WIDER Working Paper Series wp-2022-97, World Institute for Development Economic Research (UNU-WIDER).
    2. Souillard, Baptiste, 2022. "Corporate tax cuts and firm employment: A match made in haven?," Economics Letters, Elsevier, vol. 219(C).
    3. Viertola, Marika, 2023. "Profit shifting of multinational enterprises: evidence from the Nordics," Working Papers 155, VATT Institute for Economic Research.

    More about this item

    Keywords

    tax avoidance; multinational firms; tax revenue; tax havens;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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