Paul L. Caron

Wednesday, December 11, 2019

Blouin & Robinson: How Much Profit Of Multinational Enterprises Is Really In Tax Havens?

Jennifer Blouin (Penn) & Leslie A. Robinson (Dartmouth), Double Counting Accounting: How Much Profit of Multinational Enterprises Is Really in Tax Havens?:

Putting an end to the base erosion and profit shifting (BEPS) activity of multinational enterprises (MNEs) is on the national agenda of nearly every country in the world. While many influential papers suggest that the scope and magnitude of the BEPS problem is quite large, we show that these magnitudes are likely overstated due to the accounting treatment of indirectly-owned foreign affiliates in the BEA’s U.S. international economic accounts data. We explain how this accounting treatment leads to double counting of foreign income and to misallocations to the incorrect jurisdiction. We demonstrate an appropriate correction, and show that the correction significantly reduces the magnitude of the BEPS estimates.

Tax Havens

For instance, our correction reduces an estimate of the U.S. fiscal effects of BEPS from 30-45% to 4-15% of corporate tax revenues lost to BEPS activity of MNEs (Clausing 2016). Our work has far-reaching implications, as the U.S.’ national statistics have a unique accounting convention that can make comparisons of the U.S. national statistics to those of other countries difficult to interpret.

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