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Estimating the scale of profit shifting and tax revenue losses related to foreign direct investment

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  • Petr Janský
  • Miroslav Palanský

Abstract

Governments' revenues are lower when multinational enterprises avoid paying corporate income tax by shifting their profits to tax havens. In this paper, we ask which countries' tax revenues are affected most by this tax avoidance and how much. To estimate the scale of profit shifting, we start by observing that the higher the share of foreign direct investment from tax havens, the lower the reported rate of return on this investment.

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  • Petr Janský & Miroslav Palanský, 2018. "Estimating the scale of profit shifting and tax revenue losses related to foreign direct investment," WIDER Working Paper Series wp-2018-21, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:wp-2018-21
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    Cited by:

    1. Kato, Hayato & Okoshi, Hiofumi, 2019. "Economic Integration and Agglomeration of Multinational Production with Transfer Pricing," Discussion Papers in Economics 62013, University of Munich, Department of Economics.
    2. Laudage, Sabine, 2020. "Corporate tax revenue and foreign direct investment: Potential trade-offs and how to address them," Discussion Papers 17/2020, German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE).
    3. Amendolagine, Vito & De Pascale, Gianluigi & Faccilongo, Nicola, 2021. "International capital mobility and corporate tax revenues: How do controlled foreign company rules and innovation shape this relationship?," Economic Modelling, Elsevier, vol. 101(C).
    4. David Bradbury, & Tibor Hanappi & Anne Moore, . "Estimating the fiscal effects of base erosion and profit shifting: data availability and analytical issues," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    5. 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.
    6. Alvarez-Martinez, Maria & Barrios, Salvador & d'Andria, Diego & Gesualdo, Maria & Nicodème, Gaëtan & Pycroft, Jonathan, 2018. "How Large is the Corporate Tax Base Erosion and Profit Shifting? A General Equilibrium Approach," CEPR Discussion Papers 12637, C.E.P.R. Discussion Papers.
    7. Katarzyna Bilicka & André Seidel, 2020. "Profit shifting and corruption," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(5), pages 1051-1080, October.
    8. Lejour, Arjan, 2021. "The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance," Discussion Paper 2021-014, Tilburg University, Center for Economic Research.
    9. Lejour, Arjan, 2021. "The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance," Other publications TiSEM e0530ca3-b3b3-4aca-826b-d, Tilburg University, School of Economics and Management.
    10. Athiphat Muthitacharoen, 2020. "Assessing Tax Burden Differential Between Foreign Multinationals and Local Firms: Implications for FDI Tax Incentives," PIER Discussion Papers 127, Puey Ungphakorn Institute for Economic Research.

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    More about this item

    Keywords

    Foreign Direct Investment; corporate income tax; tax avoidance; Base erosion; Profit shifting; Inequality;
    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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