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

66 Pages Posted: 8 Dec 2019

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: November 21, 2019

Abstract

Putting an end to the base erosion and profit shifting (BEPS) activity of multinational enterprises (MNEs) is on the national agenda of nearly every country in the world. While many influential papers suggest that the scope and magnitude of the BEPS problem is quite large, we show that these magnitudes are likely overstated due to the accounting treatment of indirectly-owned foreign affiliates in the BEA’s U.S. international economic accounts data. We explain how this accounting treatment leads to double counting of foreign income and to misallocations to the incorrect jurisdiction. We demonstrate an appropriate 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 4-15% of corporate tax revenues lost to BEPS activity of MNEs (Clausing 2016). Our work has far-reaching implications, as the U.S.’ national statistics have a unique accounting convention that can make comparisons of the U.S. national statistics to those of other countries difficult to interpret.

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? (November 21, 2019). 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)

Register to save articles to
your library

Register

Paper statistics

Downloads
558
Abstract Views
3,248
rank
49,494
PlumX Metrics