Profit Shifting and International Tax Reforms

Alessandro Ferrari, S\'ebastien Laffitte, Mathieu Parenti () and Farid Toubal

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Abstract: International taxation rules are outdated, allowing multinationals to shift profits to tax havens. This paper examines how tax reforms affect profit shifting and cross-country welfare. We propose a model that separates real economic profits from paper profits, introducing 'triangle identities' to estimate bilateral profit-shifting flows. Using macro- and firm-level data, paper profits' elasticity is three times that of the tax base. Global minimum tax reforms improve welfare by increasing public goods funding and reducing tax competition. We also identify optimal minimum rates under various taxing-right scenarios and demonstrate that unilateral destination-based-cash-flow-tax reforms' welfare effects depend highly on trade imbalances.

Date: 2022-11, Revised 2025-01
New Economics Papers: this item is included in nep-acc, nep-geo, nep-int and nep-pbe
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Citations: View citations in EconPapers (8)

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http://arxiv.org/pdf/2211.04388 Latest version (application/pdf)

Related works:
Working Paper: ProBit Shifting and International Tax Reforms (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2211.04388

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