Organizational capacity and profit shifting

Daniela Scur and Katarzyna Bilicka

No 16502, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Good organizational capacity drives productivity and \textit{potential} taxable profits, but may also enable multinationals (MNEs) to more efficiently re-allocate profits across tax jurisdictions, lowering \textit{actual} taxable profits. We show that MNE subsidiaries with better organizational capacity report significantly lower profits and have a higher incidence of bunching around zero reported profitability in high-tax countries. This pattern is not not present in low-tax countries. Further, responsiveness to corporate tax rate changes in terms of profit reporting is driven by firms with good organizational capacity. We show our results are consistent with profit-shifting behavior and rule out key alternative channels.

Keywords: Profit shifting; Organizational capacity; Monitoring practices (search for similar items in EconPapers)
JEL-codes: H26 H32 M11 M2 (search for similar items in EconPapers)
Date: 2021-09
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Related works:
Working Paper: Organizational capacity and profit shifting (2022)
Working Paper: Organizational capacity and profit shifting (2021)
Working Paper: Organizational capacity and profit shifting (2021)
Working Paper: Organizational Capacity and Profit Shifting (2021)
Working Paper: Organizational capacity and profit shifting (2021)
Working Paper: Organizational Capacity and Profit Shifting (2021)
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