Products, Services, and Tax-Motivated Income Shifting

Zero Deng and Scott G. Rane

National Tax Journal, 2024, vol. 77, issue 1, 7 - 38

Abstract: To better understand how the rise of global service-based activities affects multijurisdictional tax avoidance, we examine variation in tax-motivated income shifting among product- and service-based firms. We find that service-based firms are more responsive to income-shifting incentives, on average, than product-based firms and that the observed responsiveness among service-based firms is increasing over time. We also find that income shifting for product- and service-based firms varies differentially with intangible intensity, human-capital characteristics, and tax-haven usage. These results inform current policy debates regarding the effectiveness of various measures aimed at combating base erosion and income shifting.

Date: 2024
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