Tuesday, November 17, 2020
Kimberly A. Clausing (UCLA), 5 Lessons on Profit Shifting From U.S. Country-by-Country Data, 169 Tax Notes Fed. 925 (Nov. 9, 2020):
One of the signature achievements of the base erosion and profit-shifting project is the collection of multinational enterprises’ country-by-country reporting data for government use in tax enforcement efforts. In late 2019 the United States became the first country to release a complete set of those data, in aggregate form, for 2017.
This article analyzes those data, demonstrating five important lessons for scholars investigating international corporate tax avoidance.
First, profits and accumulated earnings are disproportionately reported in tax havens, and some previously unobservable havens play a sizable role. Tax havens have a dominant role in profit shifting; most of the misalignment between profits and economic activity occurs in haven countries. Second, unlike reported profits, economic activity is far less sensitive to tax differences across countries. Third, aggregate data sets that combine companies with profits and those with losses provide an incomplete and biased picture of international tax avoidance; CbC data are promising in their ability to distinguish profitable companies from those with losses. Fourth, analysis of the data indicates that profit shifting was a large problem in 2017, generating major revenue costs in many countries, including the United States. Fifth, relatively modest tax reform measures could substantially increase government revenue and stem tax competition pressure.