What Do We Know About Base Erosion and Profit Shifting? A Review of the Empirical Literature
University of Illinois College of Law
June 15, 2014
Illinois Public Law Research Paper No. 14-23
The issue of tax-motivated income shifting within multinational firms – or “base erosion and profit shifting” (BEPS) – has attracted increasing global attention in recent years. This paper provides a survey of the empirical literature on this topic. Its emphasis is on reviewing and elucidating what is known about the magnitude of BEPS. It begins by outlining a simple conceptual framework that helps to clarify aspects of governments’ responses to the BEPS phenomenon and the potential role of the initiative on BEPS currently being undertaken by the OECD. The paper then discusses different empirical approaches to identifying income-shifting, describes existing data sources, and summarizes the findings of the empirical literature. A major theme that emerges from this survey is that in the more recent empirical literature, which uses new and richer sources of data, the estimated magnitude of BEPS is typically much smaller than that found in earlier studies. The paper seeks to provide a framework within which to conceptualize this magnitude and its implications for policy. It concludes by highlighting the importance of existing legal and economic frictions as constraints on BEPS, and by discussing possible ways in which future research might model these frictions more precisely.
Number of Pages in PDF File: 40
Keywords: Base erosion; profit shifting; multinational firms
JEL Classification: H25, F23working papers series
Date posted: January 2, 2014 ; Last revised: June 16, 2014
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