Abstract
A growing body of economics literature shows that multinational corporations (MNCs) shift their profits to tax havens. We contribute to this evidence by comparing a range of available data sets focusing on US MNCs, including country-by-country reporting data, a full sample of which has been released in December 2019 for the first time. With each of the data sets, we analyse the effective tax rates that US MNCs face in each country and the amount of profits they report. Using country-by-country reporting data, we have been able to establish that lower effective corporate tax rates are associated with higher levels of reported profits when compared with different indicators of real economic activity. This corresponds to the notion that MNCs often shift profits to countries with low effective tax rates—without also shifting substantive economic activity. Consequently, we identify the most important tax havens for US MNCs as countries with both low effective tax rates and high profits misaligned with economic activity.
| Original language | English |
|---|---|
| Pages (from-to) | 1519-1561 |
| Number of pages | 43 |
| Journal | International Tax and Public Finance |
| Volume | 28 |
| Issue number | 6 |
| DOIs | |
| Publication status | Published - Dec 2021 |
| Externally published | Yes |
Bibliographical note
Funding Information:We are grateful for great comments from Kimberly Clausing, Tim Dowd, Miroslav Palanský, Alexandra Rusu, Caroline Schimanski and Francis Weyzig. Javier Garcia-Bernando has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant agreement number 638946). Petr Janský acknowledges support from the Czech Science Foundation (P403/18-21011S). To ensure transparency and replicability, and in line with open science practices, our entire database and code can be found here: https://osf.io/ew67b/ .
Publisher Copyright:
© 2021, Springer Science+Business Media, LLC, part of Springer Nature.
Funding
We are grateful for great comments from Kimberly Clausing, Tim Dowd, Miroslav Palanský, Alexandra Rusu, Caroline Schimanski and Francis Weyzig. Javier Garcia-Bernando has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant agreement number 638946). Petr Janský acknowledges support from the Czech Science Foundation (P403/18-21011S). To ensure transparency and replicability, and in line with open science practices, our entire database and code can be found here: https://osf.io/ew67b/ .
Keywords
- Country-by-country reporting
- Effective tax rate
- Foreign direct investment
- Multinational corporation
- Profit shifting
- Tax competition
- Tax haven
