International Corporate Tax Avoidance: A Review of the Channels, Magnitudes, and Blind Spots

Abstract

This paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations. It surveys evidence on main channels of corporate tax avoidance including transfer mispricing, international debt shifting, treaty shopping, tax deferral and corporate inversions. Moreover, it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting. We find that the literature suggests that, for the most recent year, a 1 percentage-point lower corporate tax rate compared to other countries will expand before-tax income by 1.5 percent-an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time. The literature on tax avoidance still has several unresolved puzzles and blind spots that require further research. JEL-Codes: F230, H250. participants at the IMF "Evaluating Tax Reform" conference and Fiscal Affairs Department seminar for helpful comments. We are grateful to Jost Heckmeyer and Michael Overesch for sharing their dataset for replication purposes. Any remaining errors are our own. 5 Taxes in high-tax locations can also be avoided by changing the location of foreign direct investment (FDI). This paper, however, focuses only on tax avoidance through profit shifting, not through a change in the location of real capital (for a survey of taxation and FDI, see e.g. De Mooij and Ederveen 2008). 6 Transfer mispricing has also implications for national accounts statistics and the measurement of GDP growth, see e.g. Guvenen et al (2017).

Illicit financial flows and the Global South: A review of methods and evidence

“…This means that when the CTR gap increases by one percentage point, expected profits drop by 1.3 per cent. Two meta-analyses arrive at slightly smaller semi-elasticities of -1.0 and -0.8 (Beer et al 2020;Heckemeyer and Overesch 2017). While Beer et al (2020) illustrate a relatively stable semielasticity over time based on micro-level studies, there is substantial variation in the included estimates.…”

“…2 This is not the first review of the literature. Past reviews and discussions include Beer et al (2020); Collin (2020); Reuter (2012); Dharmapala (2014); Forstater (2018); Fuest and Riedel (2012); Heckemeyer and Overesch (2017); Johannesen and Pirttilä (2016). 3 In addition to these, Cobham and Janský (2020) provide the most comprehensive review of the applied methodologies, findings, and discussion of practical indicators for the magnitude of IFFs.…”

Tax Policy and Inclusive Growth

“…A major risk for the CIT base of countries is due to profit shifting by multinational companies. For instance, international businesses can use transfer pricing techniques, international debt shifting and treaty shopping to reduce their tax liability in a country (see Beer et al 2020 for a review of evidence on profit shifting). To protect the CIT base against profit shifting, it is important for countries to adopt appropriate anti-tax avoidance measures.…”

Corporate Taxes, Patent Shifting, and Anti-avoidance Rules: Empirical Evidence

“…Our article contributes to a flourishing literature on multinational profit shifting (see, e.g., Dharmapala 2014; Beer, De Mooij, and Liu 2019, for surveys). Tax-motivated strategic (re)location of intangible assets is-next to transfer mispricing, debt shifting, tax treaty shopping, tax deferral, and restructuring of MNEs to avoid residence country taxation-widely considered to be an important tax avoidance strategy (see, e.g., Beer, De Mooij, and Liu 2019). In this article, we empirically assess this notion and determine the quantitative relevance of IP-related profit shifting.…”