Poster Paper:
Do Multinational Companies Shift Profits out of Developing Countries? How Data Availability May Hide the Evidence
Thursday, November 8, 2018
Exhibit Hall C - Exhibit Level (Marriott Wardman Park)
*Names in bold indicate Presenter
This study aims at providing causal evidence for tax-motivated profit-shifting out of developing
countries, which, while often claimed to be the most affected, have been largely neglected in the
literature. It uses global firm-level panel data from 2006-2015 and identifies profit-shifting through
earnings shocks relative to comparable firms’ profitability that are only passed on to affiliates of the
multinational corporations located in lower, but not in higher taxed countries. Unlike previous studies
on profit-shifting, the present study is thereby able to control for country-pair-year fixed effects.
Moreover, it contributes to the literature in terms of its geographic scope, multi-dimensional shifting
patterns, the use of effective tax rates, and additional profit-shifting incentivizing factors not
previously considered. However, despite rising anecdotal concerns and non-causal evidence, this
study cannot provide robust significant causal evidence for tax-motivated profit-shifting out of
developing countries. Nor do affiliates in better credit-rated, less corrupt, more developed countries or
tax havens seem to be profit-shifting destinations. This inconsistency highlights the need for better
data.
countries, which, while often claimed to be the most affected, have been largely neglected in the
literature. It uses global firm-level panel data from 2006-2015 and identifies profit-shifting through
earnings shocks relative to comparable firms’ profitability that are only passed on to affiliates of the
multinational corporations located in lower, but not in higher taxed countries. Unlike previous studies
on profit-shifting, the present study is thereby able to control for country-pair-year fixed effects.
Moreover, it contributes to the literature in terms of its geographic scope, multi-dimensional shifting
patterns, the use of effective tax rates, and additional profit-shifting incentivizing factors not
previously considered. However, despite rising anecdotal concerns and non-causal evidence, this
study cannot provide robust significant causal evidence for tax-motivated profit-shifting out of
developing countries. Nor do affiliates in better credit-rated, less corrupt, more developed countries or
tax havens seem to be profit-shifting destinations. This inconsistency highlights the need for better
data.
