The missing profits of nations

Torslov, Thomas, Weir, Ludwig and Zucman, Gabriel (2018) The missing profits of nations. Centre for Business Taxation Working Paper, Oxford.

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Abstract

By combining new macroeconomic statistics on the activities of multinational companies with the national accounts of tax havens and the world's other countries, we estimate that close to 40% of multinational profits are shifted to low-tax countries each year. Profit
shifting is highest among U.S. multinationals; the tax revenue losses are largest for the European Union and developing countries. We show theoretically and empirically that in the current international tax system, tax authorities of high-tax countries do not have incentives to combat profit shifting to tax havens. They instead focus their enforcement effort on relocating profits booked in other high-tax places - in effect stealing revenue from each other. This policy failure can explain the persistence of profit shifting to low-tax countries despite the sizeable costs involved for high-tax countries. We provide a new cross-country database of GDP, corporate profits, trade balances, and factor shares corrected for profit shifting, showing that the global rise of the corporate capital share is significantly under-estimated.

Item Type: Other Working Paper
Keywords: Oxford University Centre for Business Taxation;
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation > CBT Working Papers
Date Deposited: 18 Jan 2019 15:22
Last Modified: 18 Jan 2019 15:22
Funders: n/a
URI: http://eureka.sbs.ox.ac.uk/id/eprint/7255

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