The Missing Profits of Nations

TY - UNPB

T1 - The Missing Profits of Nations

AU - Tørsløv, Thomas Rasmusen

AU - Wier, Ludvig

AU - Zucman, Gabriel

PY - 2018/6/5

Y1 - 2018/6/5

N2 - By exploiting new macroeconomic data known as foreign affiliates statistics, we show that foreign firms are an order of magnitude more profitable than local firms in tax havens, but less profitable than local firms in other countries. Leveraging this differential profitability, we estimate that close to 40% of multinational profits are shifted to tax havens globally each year. The non-haven European Union countries appear to be the main losers from this shifting. 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. This policy failure can explain the persistence of profit shifting to tax havens despite the sizable costs involved for high-tax countries. We provide a new international database of GDP, trade balances, and factor shares corrected for profit shifting, showing that the rise of the global corporate capital share is significantly underestimated.

AB - By exploiting new macroeconomic data known as foreign affiliates statistics, we show that foreign firms are an order of magnitude more profitable than local firms in tax havens, but less profitable than local firms in other countries. Leveraging this differential profitability, we estimate that close to 40% of multinational profits are shifted to tax havens globally each year. The non-haven European Union countries appear to be the main losers from this shifting. 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. This policy failure can explain the persistence of profit shifting to tax havens despite the sizable costs involved for high-tax countries. We provide a new international database of GDP, trade balances, and factor shares corrected for profit shifting, showing that the rise of the global corporate capital share is significantly underestimated.

U2 - 10.3386/w24701

DO - 10.3386/w24701

M3 - Working paper

T3 - National Bureau of Economic Research. Working Paper Series

BT - The Missing Profits of Nations

ER -