Conference Agenda

We analyze tax-motivated cross-border income shifting for Austrian multinational entities by merging corporate tax return data with financial statement data. We estimate a semi-elasticity of taxable income of -0.9. This elasticity increases to -2.2 for entities incentivized to shift income out of Austria, while it is close to zero for those with incentives to shift income into Austria. We find little evidence of income shifting when using financial statement profits. However, adjusting these profits for tax-exempt foreign dividends effectively re-aligns estimates with our main findings. These results underscore that using financial statement data to approximate true taxable income can substantially affect income-shifting estimates.

This paper analyzes the fiscal impact of corporate profit shifting to local business tax havens in Germany. Similar to international tax havens, municipalities in Germany have an incentive to reduce their local business tax (LBT) rate to attract corporate profits. I define local tax havens as low-tax municipalities close to large agglomeration areas. I use synthetic difference-in-differences methods together with administrative data sources to estimate the amount of profit shifting to local tax havens. Between 2013 and 2019, around 74 billion Euros were shifted to local tax havens. The results are driven by a small number of large firms that offer business and financial services. The fiscal cost to non-tax haven municipalities amounts to roughly 11 billion Euros.

Can a country reduce its exposure to tax havens, and what are the consequences? We analyze the effects of Ecuador’s corporate tax surcharge for firms with owners in tax havens. The reform was made possible by the prior establishment of an ownership registry. Comparing the behavior of firms with tax-haven owners at baseline (exposed firms), versus other foreign-owned firms, we find that the reform induced 12 percent of exposed firms to reduce tax haven ownership to zero. Exposed firms report owners in non-haven countries that tend to be individuals rather than firms, thus raising beneficial ownership transparency. Exposed firms also increase tax payments by 15%, without reducing employment and investment in Ecuador. Yet, transactions between exposed firms and tax haven parties did not fall. Overall, the policy which combined a “flashlight” (the ownership registry) and a “stick” (the tax surcharge) seemed effective at raising transparency and mitigating tax erosion.

It is well-known that some multinationals shift profits to tax havens. By manipulating the cost of intra-firm transactions, these firms artificially lower their tax base and the reduce the effectiveness of the tax authority. While this can be countered by monitoring and audits, such efforts are costly. Here, we present a data-driven approach to identifying potential profit shifters to better target limited audit resources. By comparing actual data from individual firms' tax returns in Ugandan administrative to broader industry trends, the method identifies when a given firm's behaviour seems unlikely in the absence of profit shifting. The method indicates that fewer of 3% of multinationals in Uganda exhibit such behaviour with four firms making up over 90% of potentially lost tax revenues. Thus, our methodology is a feasible and low cost method of targeting audits.