Profit Shifting of U.S. Multinationals

33 Pages Posted: 8 Jan 2016  

Tim Dowd

Joint Committee on Taxation, U.S. Congress

Paul Landefeld

Joint Committee on Taxation, U.S. Congress

Anne Moore

Joint Committee on Taxation, U.S. Congress

Date Written: January 6, 2016

Abstract

We analyze the profit shifting behavior of U.S. multinational firms using a unique panel data set of U.S. tax returns over the period 2002-2012. Prior research has found significant effects of tax rates in affiliate and parent countries on the profit shifting behavior of multinational entities, with semi-elasticities ranging from close to zero to well above one. We build on this prior work by allowing more heterogeneity in response across the distribution of tax rates and by including affiliates located in tax havens around the world. Our findings suggest that elasticities based on a log-linear specification may severely understate the sensitivity of profits to tax in low-tax jurisdictions while simultaneously overstating this elasticity in high-tax jurisdictions. Accounting for this type of nonlinearity appears crucial in considering how the global allocation of firm profits might change in response to tax rate changes.

Keywords: International Tax

JEL Classification: H25

Suggested Citation

Dowd, Tim and Landefeld, Paul and Moore, Anne, Profit Shifting of U.S. Multinationals (January 6, 2016). Available at SSRN: https://ssrn.com/abstract=2711968 or http://dx.doi.org/10.2139/ssrn.2711968

Timothy Dowd (Contact Author)

Joint Committee on Taxation, U.S. Congress ( email )

Room 503 Ford House Office Building
Washington, DC 20515
United States

Paul Landefeld

Joint Committee on Taxation, U.S. Congress ( email )

The Joint Committee on Taxation
H2-502 Ford House Office Building
Washington, DC 20515
United States

Anne Moore

Joint Committee on Taxation, U.S. Congress ( email )

Room 1625 Longworth House Office Building
Washington, DC 20515
United States

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