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Tax-Motivated Profit Shifting and Anti-Avoidance Stringency: Firm-Level Evidence from Developing Countries

Athiphat Muthitacharoen and Krislert Samphantharak
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Athiphat Muthitacharoen: Chulalongkorn University
Krislert Samphantharak: Bank of Thailand

PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: This paper uses firm-level data from developing countries to examine the significance of tax-motivated profit shifting from high-tax to low-tax countries by multinational enterprises and to analyze the extent to which anti-avoidance measures mitigate the profit shifting. Focusing on firms in ASEAN5, this study shows that (1) tax-motivated profit shifting is statistically and economically significant, especially for manufacturing firms, (2) auditing and transfer-pricing scrutiny is more effective in reducing profit shifting than documentation requirement alone, and (3) tax-motivated profit shifting is prominent for large firms, while anti-tax avoidance measures result in the absence of profit shifting detected from small manufacturing firms. The findings have important policy implications regarding tax revenues in developing countries, especially those depending on multinational enterprises but having weak governance.

Keywords: Profit Shifting; Tax Avoidance; Transfer Pricing; Anti-tax Avoidance; Multinational Enterprise (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 K34 M42 (search for similar items in EconPapers)
Pages: 23 page
Date: 2019-08, Revised 2019-08
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