Profit Shifting and 'Aggressive' Tax Planning by Multinational Firms: Issues and Options for Reform
30 Pages Posted: 21 Oct 2013
Date Written: October 15, 2013
This paper discusses the issue of profit shifting and "aggressive" tax planning by multinational firms. The paper makes two contributions. First, it provides some background information to the debate by giving a brief overview of existing empirical studies on profit shifting and by describing arrangements for IP-based profit shifting which are used by the companies currently accused of avoiding taxes. We then show that preventing this type of tax avoidance is, in principle, straightforward. Second, we argue that, in the short term, policy makers should focus on extending withholding taxes in an internationally coordinated way. Other measures which are currently being discussed, in particular unilateral measures, like limitations on interest and license deduction, fundamental reforms of the international tax system and country-by-country reporting, are either economically harmful or need to be elaborated much further before their introduction can be considered.
Keywords: tax avoidance, profit shifting, multinational firms, intellectual property, tax policy, tax reform
JEL Classification: H20, H25, F23, K34
Suggested Citation: Suggested Citation