Profit shifting: drivers of transfer (mis)pricing and the potential of countermeasures
Sebastian Beer () and
International Tax and Public Finance, 2015, vol. 22, issue 3, 426-451
In trying to explain the drivers of global profit shifting by multinational enterprises (MNEs), we investigate firm-specific determinants and their variation across major industries. Using the ORBIS database, we show that intangible asset endowment of subsidiaries and the supply-chain complexity of MNE groups explain aggregate profit-shifting trends. According to our estimates, subsidiaries with no intangibles react to an incremental increase of the tax rate by reducing reported profits by 0.76 %, while subsidiaries with above median intangible endowment decrease their profits by 1.2 %. This difference is significant at the 5 % level. We find an even more pronounced difference in the observed semi-elasticities comparing affiliates belonging to simple ( $$-$$ - 0.52) and more complex MNEs ( $$-$$ - 1.92), suggesting a significantly larger sensitivity to CIT rate changes of the latter group. Moreover, we incorporate country-specific transfer pricing mitigation measures (documentation requirements) into our analysis. We find significant mitigation effects, which vary depending on the drivers identified in our analysis. On average, estimated profit shifting among MNE subsidiaries in our sample is reduced by 52 % 2 years after the introduction of mandatory documentation requirements. We do, however, not find a significant effect on affiliates with high intangible endowments, whereas documentation reduces profit shifting of subsidiaries within complex MNE groups. Our analysis suggests that complexity poses less of a challenge to effective domestic enforcement than the appropriate pricing of intangible assets. These findings thus provide additional insights on profit-shifting risks and mitigation effects conditional on firm attributes, which may support the design of anti-avoidance approaches and help guide the allocation of scarce analytical and enforcement resources. Copyright Springer Science+Business Media New York 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:22:y:2015:i:3:p:426-451
Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2
Access Statistics for this article
International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf
More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().