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Where Does Multinational Profit Go with Territorial Taxation? Evidence from the UK

Dominika Langenmayr () and Li Liu

VfS Annual Conference 2020 (Virtual Conference): Gender Economics from Verein für Socialpolitik / German Economic Association

Abstract: In 2009, the United Kingdom abolished the taxation of profits earned abroad and introduced a territorial tax system. Under the territorial system, firms have strong incentives to shift profits abroad. Using a difference-in-differences research design, we show that profits of UK subsidiaries in low-tax countries increased after the reform compared to subsidiaries of non-UK multinationals in the same countries, by an average of 2.1 percentage points. The increase in profit shifting also leads to increases in measured productivity of the foreign affiliates of UK multinationals of between 5 and 9 percent.

Keywords: profit shifting; territorial tax system; multinational firms (search for similar items in EconPapers)
JEL-codes: H25 H87 F23 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-acc, nep-eff, nep-eur and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc20:224516

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