Multinational Firms and Tax Havens

Gumpert, Anna; Hines, James R.; Schnitzer, Monika

doi:10.1162/rest_a_00591

Cited by 112 publications

(88 citation statements)

References 27 publications

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“…Since not all economic activity in tax havens is illegal, the fact that a genuine investor should be entirely unaffected by such treaties makes them an ideal strategy to identify tax evasion. Transparent tax avoidance strategies, as discussed in Johannesen (2014a), OECD (2014), Hebous and Johannesen (2015), and Gumpert et al (2016), will not influence the results, because they should not react to the threat of information exchange.…”

Section: Information Exchange Agreementsmentioning

confidence: 99%

Tax evasion in new disguise? Examining tax havens' international bank deposits

Menkhoff

Miethe

2019

Journal of Public Economics

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Recent efforts to reduce international tax evasion focus on information exchange with tax havens. Using bilateral bank data for 1,397 country pairs in a balanced quarterly panel from 2003:I -2017:IV, we first show that information-on-request treaties with tax havens reduce bank deposits in tax havens by 27.5%. Second, also deposits from tax havens in high tax countries decline after such treaties are signed, giving authorities a second angle to detect tax evasion. Both reactions dissipate overt time and treaties signed after 2010 trigger no further reactions. These results cannot be explained by deposit shifting alone and we find no evidence of transitioning into legality. Third, recent policy initiatives based on the automatic exchange of bank information lead to very similar initial reactions as earlier treaties, consistent with adjustments on the part of tax evaders. This suggests that tax evaders adapt to established information exchange treaties by using new disguises to hide their true income, and react again to new measures. These results cast doubt on the effectiveness of current forms of information exchange to tackle international tax evasion. JEL classification:H 26 (tax evasion and avoidance), F 38 (int'l financial policy)

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Section: Information Exchange Agreementsmentioning

confidence: 99%

Tax evasion in new disguise? Examining tax havens' international bank deposits

Menkhoff

Miethe

2019

Journal of Public Economics

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“…For the UK, Habu (2017) finds that taxable profits relative to total assets reported by foreign multinational subsidiaries are half those of comparable domestic standalones, 40% of which she attributes to debt shifting. For Germany, in addition to the aforementioned studies by Weichenrieder (2009), Hebous and Johannesen (2015) and Gumpert et al (2016), Finke (2014) finds that MNEs in Germany on average pay about 27% less profit tax than German domestic counterfactuals. Ruf and Weichenrieder (2013) show the increased preference of German MNEs for low-tax European countries compared to non-European countries following a change in German controlled foreign corporation rules.…”

Section: Literature Reviewmentioning

confidence: 94%

International tax planning within the structure of corporate entities owned by the shareholder‐individuals through Panama Papers destinations

Nerudová

Solilová

Litzman

et al. 2019

Development Policy Review

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Motivation The Panama Papers scandal highlighted the scale of financial secrecy, anonymous ownership and shell companies and their role in profit shifting and tax avoidance. We show the importance of international tax planning within the structure of corporate entities owned by shareholder‐individuals through Panama Papers destinations. Purpose To identify profit‐shifting channels and to estimate related government revenue losses to European Union Member States. Methods Using company data from the Amadeus/Orbis database (Bureau Van Dijk, n.d.a, n.d.b), we applied micro‐data analysis to the financial statements of multinational companies (MNEs) owned by shareholder‐individuals. Two groups—one with and the other without links to Panama Papers tax havens—alongside an analysis of profit‐shifting indicators. Findings Profit is generally shifted by moving operating revenues or costs, though the use of debt channels is also important. Also, groups linked to tax havens pay significantly less tax per unit of profit before tax, and require less operating revenue to achieve higher profits. Finally, related government revenue losses were assessed at EUR 8.67 billion. Policy implication Our results are relevant to the European Commission’s Comprehensive Common Consolidated Corporate Tax Base (CCCCTB) as it aims to counter profit shifting out of the European Union (EU) into tax havens. Further, our research highlights the importance of setting up registries of ultimate beneficiary owners in EU Member States.

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“…Moreover, contrary to most prior work, our analysis accounts for the worldwide location decision of multinational firms and does not restrict the perspective to a limited set of countries in the OECD, Europe or North America. The paper by Gumpert, Hines, and Schnitzer () uses data on German MNCs to analyze the extensive margin of tax haven activity of MNCs.…”

Section: Related Literaturementioning

confidence: 99%

The impact of thin‐capitalization rules on the location of multinational firms’ foreign affiliates

Merlo

Riedel²,

Wamser

2019

Rev International Economics

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This paper examines how restrictions on the tax deductibility of interest cost affect location choices of multinational corporations (MNCs). Many countries have introduced so‐called thin‐capitalization rules (TCRs) to prevent MNCs from shifting their tax base to countries with lower tax rates. As of 2012, in our sample of 172 countries, 61 countries have implemented a TCR. Using information on nearly all new foreign investments of German MNCs, we provide a number of new and interesting insights in how TCRs affect the decision of where to locate foreign entities. In particular, stricter TCRs are found to negatively affect location choices of MNCs. Our results include estimates of own‐ and cross‐elasticities of location choice and also novel results on the relative importance of tax base vs. tax rate effects. We finally provide estimates for different uncoordinated as well as coordinated policy scenarios.

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Multinational Firms and Tax Havens

Cited by 112 publications

References 27 publications

Tax evasion in new disguise? Examining tax havens' international bank deposits

Tax evasion in new disguise? Examining tax havens' international bank deposits

International tax planning within the structure of corporate entities owned by the shareholder‐individuals through Panama Papers destinations

The impact of thin‐capitalization rules on the location of multinational firms’ foreign affiliates

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