At your service! The role of tax havens in international trade with services

Shafik Hebous and Niels Johannesen

European Economic Review, 2021, vol. 135, issue C

Abstract: This paper provides the first comprehensive study of profit shifting through service trade inside multinational firms. The analysis employs a unique firm-level dataset with detailed information about service trade and foreign affiliates for virtually all multinational firms in Germany. We find patterns consistent with profit shifting in service categories such as intellectual property (patents and trademarks), headquarter services(administration, management and advertizing), information services(data processing and storage) and financial services (investment, lending and money management). In these service categories, trade with affiliates in tax havens is skewed towards imports and the internal service providers in tax havens earn significant excess profits that vary strongly with the value of their internal service sales. These patterns are suggestive that multinational firms operate tax haven entities that sell overpriced services to affiliates in order to erode their taxable profits and reduce the global tax bill. While total service imports from tax havens are very large, our estimates suggest that Germany’s loss of government revenue from mispriced service imports from tax havens is relatively modest, less than € 1 billion per year.

Keywords: Service trade; Profit shifting; Tax evasion; Tax avoidance; Multinational firms; Tax havens (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292121000908
Full text for ScienceDirect subscribers only

Related works:
Working Paper: At Your Service! The Role of Tax Havens in International Trade with Services (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:135:y:2021:i:c:s0014292121000908

DOI: 10.1016/j.euroecorev.2021.103737

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().