Conference Agenda

This paper extends the forward-looking effective tax rates of Devereux and Griffith (1998) to model targeted tax reforms and anti-avoidance measures. To implement tax reforms or tax measures which depend on firm-characteristics the effective tax rates are calculated using firm characteristics like in Egger et al. (2009). The propsed extensions aim to model interest barriers, thin capitalisation and CFC rules as well as considering loss consoldiation and loss carry forward. Comparing the results to the standard bilateral effective tax rates shows that considering firm-variation can substantially alter the ranking of the bilateral tax burden.

This paper investigates how multinational enterprises (MNEs) strategically reallocate risk among their affiliates in response to the introduction of transfer pricing regulations, using the implementation of transfer pricing documentation rules in France in 2010 as a quasi-natural experiment. Using administrative data, we examine the shifting of several risk types outlined in the OECD Transfer Pricing Guidelines, including market risk, credit risk, and R&D risk. Our analyses suggest that affected MNEs allocate less market and credit risk to French affiliates and consequently more risk to affiliates in low-tax countries after the reform. As risk allocation goes hand in hand with shifting of real activity, we find a decrease in the value of fixed and intangible assets in France following the reform. Our study provides insights into the effectiveness of transfer pricing regulations and sheds light on how MNEs adapt their corporate structures to facilitate profit shifting through transfer pricing mechanisms.

Using a stacked difference-in-differences design, we look into the profit shift-ing responses of multinational entities (MNEs) on double taxation treaties’ (DTT) arbitra-tion clauses. Based on bilateral data on MNE financials, trade flow, and foreign direct in-vestment (FDI), we find that the introduction of an arbitration clause in existing DTTs has, on average, a significant impact on profit shifting. In line with this, the introduction of arbitration leads to an increase in the trade value-added for affiliates in low-taxed coun-tries. The effect is stronger for affiliates in countries having a larger exposure to tax avoid-ance and lower statutory tax rates. In contrast, the introduction of an arbitration clause weakens the inflow of FDI into lower-taxed affiliated companies and increases profit dis-tributions. A series of additional tests suggest that our results are robust