Organizational Capacity and Profit Shifting

71 Pages Posted: 13 Sep 2021 Last revised: 10 May 2023

See all articles by Katarzyna Anna Bilicka

Katarzyna Anna Bilicka

Utah State University

Daniela Scur

Cornell University - Charles H. Dyson School of Applied Economics and Management; Cornell SC Johnson College of Business

Date Written: September 2021

Abstract

Good organizational capacity drives productivity and potential taxable profits, but may also enable multinationals (MNEs) to more efficiently re-allocate profits across tax jurisdictions, lowering actual taxable profits. We show that MNE subsidiaries with better organizational capacity report significantly lower profits and have a higher incidence of bunching around zero reported profitability in high-tax countries. This pattern is not present in low-tax countries. Further, responsiveness to corporate tax rate changes in terms of profit reporting is driven by firms with good organizational capacity. We show our results are consistent with profit-shifting behavior and rule out key alternative channels.

Suggested Citation

Bilicka, Katarzyna Anna and Scur, Daniela, Organizational Capacity and Profit Shifting (September 2021). NBER Working Paper No. w29225, Available at SSRN: https://ssrn.com/abstract=3922499

Daniela Scur

Cornell University - Charles H. Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

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