Multinationals profit response to tax differentials: Effect size and shifting channels

Jost H. Heckemeyer and Michael Overesch

Canadian Journal of Economics, 2017, vol. 50, issue 4, 965-994

Abstract: This paper provides a quantitative review of the empirical literature on profit-shifting behaviour of multinational firms. We synthesize the evidence from 27 studies and find a substantial response of profit measures to international tax rate differentials. Accounting for confounding factors by means of meta-regressions, we predict a tax semi-elasticity of subsidiary pre-tax profits of about 0.8. Moreover, we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel. Back-of-the-envelope calculations suggest that transfer pricing and licensing are the dominant profit-shifting channels.

JEL-codes: H25 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (135)

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