Taxing Income in the Oil and Gas Sector - Challenges of International and Domestic Pro fit Shifting

32 Pages Posted: 3 Jun 2015 Last revised: 8 Jun 2015

See all articles by Sebastian Beer

Sebastian Beer

Vienna University of Economics and Business - Department of Economics; Oesterreichische Nationalbank (OeNB)

Jan Loeprick

Vienna University of Economics and Business; World Bank

Date Written: May 2015

Abstract

This paper provides speci c estimates on the scale of profi t shifting among hydrocarbon MNEs. We estimate a lower-bound semi-elasticity of reported profi ts to sector specifi c income taxation of -1.88. To assess the importance of domestic pro fit-shifting channels, we take advantage of domestic tax differentials among hydrocarbon producers facing additional rent taxes and fi nd that domestic profi t shifting accounts for about one third of total income concealed. Overall, we estimate revenue losses in the sector due to profi t-shifting amount to 12% - 35% of the income tax base, depending on the characteristics of a country's tax regime. We also observe a higher vulnerability of non-OECD economies to profi t shifting in our sample, which consists of 294 domestic and multinational parents and subsidiaries during the period from 2004-2012. Finally, our analysis confi rms the mitigation effect of documentation requirements for internal transactions. However, we also fi nd that increased enforcement prompts MNEs in the Oil and Gas sector to rely more heavily on the reallocation of profi ts at the domestic level.

Suggested Citation

Beer, Sebastian and Beer, Sebastian and Loeprick, Jan, Taxing Income in the Oil and Gas Sector - Challenges of International and Domestic Pro fit Shifting (May 2015). WU International Taxation Research Paper Series No. 2015 - 18, Available at SSRN: https://ssrn.com/abstract=2610558 or http://dx.doi.org/10.2139/ssrn.2610558

Sebastian Beer (Contact Author)

Vienna University of Economics and Business - Department of Economics ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
1090 Vienna
Austria

Jan Loeprick

Vienna University of Economics and Business ( email )

Wien
Austria

World Bank ( email )

Wien
Austria

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