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The Distribution of Profit Shifting

Author

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  • Sarah Clifford
  • Jakob Miethe
  • Camille Semelet

Abstract

This paper characterizes profit shifting behavior across the size distribution of multinational enterprises (MNEs) to evaluate the targeting of the recently introduced Global Minimum Tax (GMT). Using German microeconomic administrative data with no reporting gaps for tax havens, we first document reductions in tax payments after tax haven subsidiaries are added to a group and confirm their outsized productivity. As group size increases, so does the likelihood of including tax haven subsidiaries. Second, we introduce a new methodology to estimate shifted profits at the group level and find an exponential group size gradient in profits shifted to tax havens. A total of EUR 19 billion was shifted to tax havens by German MNEs in 2022. Large groups targeted by the GMT account for 95% of this amount. While this is mainly a function of their size, we also document a positive gradient in profit shifting aggressiveness relative to employment. Third, we relate revenue potential from taxing excess profits in low-tax jurisdictions to compliance costs of the GMT, using a 15% benchmark rate. For groups currently covered by the GMT, revenue gains significantly dominate costs, while extending coverage to additional groups yields only modest net gains. Our results support policy consistency of the GMT in the face of recent unilateral challenges.

Suggested Citation

  • Sarah Clifford & Jakob Miethe & Camille Semelet, 2025. "The Distribution of Profit Shifting," CESifo Working Paper Series 11975, CESifo.
  • Handle: RePEc:ces:ceswps:_11975
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    References listed on IDEAS

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    1. Sebastian Beer & Ruud de Mooij & Li Liu, 2020. "International Corporate Tax Avoidance: A Review Of The Channels, Magnitudes, And Blind Spots," Journal of Economic Surveys, Wiley Blackwell, vol. 34(3), pages 660-688, July.
    2. Katarzyna A. Bilicka & Michael P. Devereux & İrem Güçeri, 2024. "Tax Policy, Investment and Profit Shifting," NBER Working Papers 33132, National Bureau of Economic Research, Inc.
    3. Bustos, Sebastian & Pomeranz, Dina & Suárez Serrato, Juan Carlos & Vila-Belda, José & Zucman, Gabriel, 2022. "The Race Between Tax Enforcement and Tax Planning: Evidence From a Natural Experiment in Chile," CEPR Discussion Papers 17347, C.E.P.R. Discussion Papers.
    4. Katarzyna Anna Bilicka, 2019. "Comparing UK Tax Returns of Foreign Multinationals to Matched Domestic Firms," American Economic Review, American Economic Association, vol. 109(8), pages 2921-2953, August.
    5. Youssef Benzarti, 2020. "How Taxing Is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs," American Economic Journal: Economic Policy, American Economic Association, vol. 12(4), pages 38-57, November.
    6. Barbara Bratta & Vera Santomartino & Paolo Acciari, 2024. "Assessing Profit Shifting Using Country-by-Country Reports: A Nonlinear Response to Tax Rate Differentials," National Tax Journal, University of Chicago Press, vol. 77(2), pages 349-380.
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    Keywords

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    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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