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The Exorbitant Privilege of High Tax Countries

Vincent Vicard

Working Papers from CEPII research center

Abstract: The well documented US excess returns on its net foreign assets is no exception at the world level. Excess returns on foreign assets owe largely to yield differential within the FDI asset class and are correlated to the corporate tax rate for a large sample of countries, consistently with tax motivated profit shifting by multinational corporations. Using French firm level data on dividends and reinvested earnings from foreign affiliates, I provide evidence and quantify the impact of corporate tax avoidance on international asset returns. Profit shifting inflates the investment income balance and accounts for the average 2 percentage points return differential between French FDI assets and liabilities. Missing profts in France, estimated at €36 billions or 1.6% of GDP in 2015, are mostly shifted to EU countries.

Keywords: Proft Shifting; Multinational Firms; FDI; Investment Income; Tax Avoidance (search for similar items in EconPapers)
JEL-codes: H26 H25 H32 F14 F23 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-acc, nep-eec and nep-pbe
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