EconPapers    
Economics at your fingertips  
 

Big and ‘unprofitable’: How 10% of multinational firms do 98% of profit shifting

Wier Ludvig and Reynolds Hayley

No 111, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: Globally, the largest 0.001 per cent of firms earn roughly one-third of all corporate profits. Nonetheless, there is little understanding of how profit shifting differs across firm size.Using South African corporate tax returns from 2010–14, we investigate the link between firm size and profit shifting. We estimate that firms owned by a parent in a tax haven avoid taxation on as much as 80 per cent of their true income. However, this aggregate tax loss conceals large differences across firms.The majority of firms shift little income to tax havens, while a few large firms shift a lot. The top decile of foreign-owned firms accounts for 98 per cent of the total estimated tax loss. This extreme concentration of tax planning has not been documented before and has implications for both research and policy.First, our results imply that tax havens create competitive distortions as larger firms benefit more. Second, as past research does not account for heterogeneity across firms, it may underestimate the total tax loss caused by profit shifting.As an illustration of this, we revisit the OECD’s official estimate of profit shifting and find that profit shifting may have been dramatically underestimated.Resources Appendix.xlsx Appendix.pdf

Keywords: Multinational firms; Profit shifting; Tax; Developing countries; International taxation (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-bec and nep-pke
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.wider.unu.edu/sites/default/files/Publi ... r/PDF/wp2018-111.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:unu:wpaper:wp2018-111

Access Statistics for this paper

More papers in WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER) Contact information at EDIRC.
Bibliographic data for series maintained by Mauricio Roa Grisales ().

 
Page updated 2019-10-20
Handle: RePEc:unu:wpaper:wp2018-111