Taxes, Profit Shifting, and the Real Activities of MNEs: Evidence from Corporate Tax Notches

Arbeitspapier

We exploit exogenous variation in tax notches created by controlled foreign corporation (CFC) rules to better understand the profit-shifting behavior of multinational enterprises (MNEs) and its consequences for real activity. Using new data on CFC rules and information on direct parent-affiliate ownership links, our identification approach allows us to estimate an unbiased profit-shifting semi-elasticity of about 0.22. Removing incentives to shift profits to particular low-tax locations leads to profit relocation to 'next-best' low-tax countries, allowing firms to circumvent domestic taxation. We do not find any significant effects on parent shareholders, neither in terms of repatriated profit nor in terms of their real economic activity. Other entities within the MNE, where profits get relocated to, see a significant increase in various measures of real activity.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 10593

Classification and Topics

• Classification: Wirtschaft ; Multinational Firms; International Business ; Business Taxes and Subsidies including sales and value-added (VAT)
• Subject: corporate taxation ; profit shifting anti-tax-avoidance rules ; multinational enterprise ; firm organization

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hansen, Jaqueline ; Merlo, Valeria ; Wamser, Georg
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/279344
• Last update: 10.03.2025, 11:42 AM CET