Global Evidence on Profit Shifting Within Firms and Across Time

74 Pages Posted: 2 Dec 2022 Last revised: 5 Feb 2024

See all articles by Fotis Delis

Fotis Delis

European Commission, Joint Research Centre

Manthos D. Delis

Audencia Business School

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Steven Ongena

University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Date Written: January 27, 2024

Abstract

We provide estimates of profit shifting for over 2 million firm-year observations in 100 countries over the period 2009-2020. Employing nonparametric estimation techniques within a mainstay model of profit shifting, we examine how profits for both parent and subsidiary firms within a multinational group respond to marginal changes in the composite tax indicator. The key merit of this approach is that it yields firm-year estimates of profit shifting. We find that multinational firms engage in extensive profit shifting by maintaining affiliates in low-tax countries and zero-tax havens. Multinational groups with an ultimate owner in tax havens exhibit the largest responses of profits to the tax incentive. Our comprehensive estimates of global profit-shifting volumes exceed those obtained elsewhere in the literature using firm-level data and are in line with estimates obtained using macro-level data. Our new database opens important avenues to analyze the sources and effects of profit shifting.

Keywords: Profit shifting; multinational enterprises; nonparametric estimation; tax arbitrage; global sample

JEL Classification: F23; H25; H26; H32; M41

Suggested Citation

Delis, Fotis and Delis, Manthos D. and Laeven, Luc A. and Ongena, Steven R. G., Global Evidence on Profit Shifting Within Firms and Across Time (January 27, 2024). Swiss Finance Institute Research Paper No. 22-94, Available at SSRN: https://ssrn.com/abstract=4291888. or http://dx.doi.org/10.2139/ssrn.4291888

Fotis Delis

European Commission, Joint Research Centre ( email )

Seville
Spain

Manthos D. Delis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Steven R. G. Ongena (Contact Author)

University of Zurich - Department Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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