The Instruments of Profit Shifting

Kevin Parra Ramirez and Vincent Vicard

Working Papers from CEPII research center

Abstract: While multinational enterprises (MNEs) shift hundreds of billions in profits to low-tax jurisdictions annually, how they do remains disputed. Using firm-level data for France in 2018, we provide the first joint quantification of the three main profit-shifting channels: transfer mispricing in goods trade, intangible assets and services traded with tax havens, and intra-firm debt. We find empirical evidence for all three instruments, but transfer mispricing dominates quantitatively (€10 billion, 0.4\% of GDP), followed by services (up to €6 billion) and debt (€2 billion). Although significant, these direct estimates account for half of total missing profits in France, as estimated indirectly from the location of MNE profits. We document two key blind spots likely to close this gap: cross-border digital payments by households and understudied debt instruments (e.g., securities).

Keywords: Tax Avoidance; Multinational Firms; Profit Shifting; FDI; Trade (search for similar items in EconPapers)
JEL-codes: F14 F23 H25 H26 H32 (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-iaf and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepidt:2025-16

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