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Global Evidence on Profit Shifting Within Firms and Across Time

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Abstract

We provide estimates of profit shifting for over 2 million firm-year observations in 100 countries over the period 2009-2020. Employing nonparametric estimation techniques within a mainstay model of profit shifting, we examine how profits for both parent and subsidiary firms within a multinational group respond to marginal changes in the composite tax indicator. The key merit of this approach is that it yields firm-year estimates of profit shifting. We find that multinational firms engage in extensive profit shifting by maintaining affiliates in low-tax countries and zero-tax havens. Multinational groups with an ultimate owner in tax havens exhibit the largest responses of profits to the tax incentive. Our comprehensive estimates of global profit-shifting volumes exceed those obtained elsewhere in the literature using firm-level data and are in line with estimates obtained using macro-level data. Our new database opens important avenues to analyse the sources and effects of profit shifting.

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  • DELIS Fotis & DELIS Manthos & LAEVEN Luc & ONGENA Steven, 2023. "Global Evidence on Profit Shifting Within Firms and Across Time," JRC Working Papers on Taxation & Structural Reforms 2023-12, Joint Research Centre.
    • Handle: RePEc:ipt:taxref:202312
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    File URL: https://publications.jrc.ec.europa.eu/repository/handle/JRC135964
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    JEL classification:

    • 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
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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