The Instruments of Profit Shifting

Kevin Parra Ramirez () and Vincent Vicard ()
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Kevin Parra Ramirez: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, Banque de France
Vincent Vicard: CEPII - Centre d'études prospectives et d'informations internationales

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Abstract: While multinational enterprises (MNEs) shift hundreds of billions in profits to lowtax jurisdictions annually, how they do remains disputed. Using firm-level data for France in 2018, we provide the first joint quantification of the three main profitshifting channels: transfer mispricing in goods trade, intangible assets and services traded with tax havens, and intra-firm debt. We find empirical evidence for all three instruments, but transfer mispricing dominates quantitatively (A C 10 billion, 0.4% of GDP), followed by services (up to A C 6 billion) and debt (A C 2 billion). Although significant, these direct estimates account for half of total missing profits in France, as estimated indirectly from the location of MNE profits. We document two key blind spots likely to close this gap: cross-border digital payments by households and understudied debt instruments (e.g., securities).

Keywords: Trade; FDI; Profit shifting; Multinational firms; Tax avoidance (search for similar items in EconPapers)
Date: 2025-09
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