Double Counting Accounting: How Much Profit of Multinational Enterprises Is Really in Tax Havens?

66 Pages Posted: 8 Dec 2019 Last revised: 21 May 2020

See all articles by Jennifer Blouin

Jennifer Blouin

University of Pennsylvania - Accounting Department

Leslie A. Robinson

Dartmouth College - Tuck School of Business; Dartmouth College - Accounting

Date Written: May 20, 2020

Abstract

Putting an end to the base erosion and profit shifting (BEPS) activity of multinational enterprises (MNEs) is high on national agendas. Influential work in academic and policy circles suggests that the magnitude of BEPS problem is large. We show that these magnitudes are overstated due to researchers’ misunderstanding of the accounting treatment of indirectly-owned foreign affiliates in the U.S. international economic accounts data. Our work has far-reaching implications as all country-level MNE data must apply some accounting convention that can make international comparisons difficult. We explain how this accounting treatment leads to double counting of foreign income and to its misattribution to incorrect jurisdictions. We demonstrate a simple correction, and show that the correction significantly reduces the magnitude of the BEPS estimates. For instance, our correction reduces an estimate of the U.S. fiscal effects of BEPS from 30-45% to 4-8% of corporate tax revenues lost to BEPS activity of MNEs (Clausing 2016).

Keywords: base erosion and profit shifting, measurement, accounting, foreign direct investment

JEL Classification: H32, M41, O50

Suggested Citation

Blouin, Jennifer and Robinson, Leslie, Double Counting Accounting: How Much Profit of Multinational Enterprises Is Really in Tax Havens? (May 20, 2020). Available at SSRN: https://ssrn.com/abstract=3491451 or http://dx.doi.org/10.2139/ssrn.3491451

Jennifer Blouin (Contact Author)

University of Pennsylvania - Accounting Department ( email )

1315 SHDH
3620 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-1266 (Phone)

Leslie Robinson

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Dartmouth College - Accounting ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-4018 (Phone)

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