Tax avoidance and the complexity of multinational enterprises

Manon Francois () and Vincent Vicard ()
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Manon Francois: EU Tax Observatory, Paris School of Economics and Paris 1 University,

No 15, Working Papers from EU Tax Observatory

Abstract: Does the complexity of the ownership structure of multinational enterprises’ (MNEs) enable tax avoidance? We characterize as complex an MNE’s ownership structure in which the headquarter owns its subsidiaries through a chain of intermediaries and we build a measure defined as the mean number of layers between affiliates and the headquarter. We use firm-level cross-country data to show that affiliates belonging to more complex MNEs are more likely to report zero profit, which is consistent with complexity enabling tax avoidance by multinationals. Our results underline that only the more complex MNEs shift profits away from their high-tax affiliates, while MNEs with flat ownership structures do not display such pattern.

Keywords: Complexity; Firm organization; Multinational enterprises; Profit shifting; Tax avoidance (search for similar items in EconPapers)
JEL-codes: F23 H2 L22 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2023-02
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