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Taxing in a Globalized World

Paper Session

Friday, Jan. 4, 2019 10:15 AM - 12:15 PM

Atlanta Marriott Marquis, International 1
Hosted By: American Economic Association
  • Chair: Gabriel Zucman, University of California-Berkeley

Profit Shifting in a Globalized World

Dhammika Dharmapala
,
University of Chicago

Abstract

This paper briefly reviews the measurement of the magnitude of profit shifting by multinational firms. Highlighting differences between estimates using microeconomic and macroeconomic approaches, it sketches a conceptual framework that can help explain these divergent estimates. In particular, these approaches arguably differ in their conceptualization of the boundary between tax avoidance and behavioral responses to taxes. The paper also discusses the future of profit shifting, drawing on a dataset that codes anti-avoidance measures undertaken by OECD countries over the period 2000-2014. Governments have significantly strengthened these rules over this period, despite collective action problems that potentially inhibit their implementation.

How Elastic is the Demand for Tax Havens? Evidence from the United States Possessions

Daniel Garrett
,
Duke University
Juan Carlos Suárez Serrato
,
Duke University

Abstract

Why do some firms adopt certain tax havens and how sensitive is the demand for tax havens? In this paper we address these questions by studying the decision of firms to take advantage of profit shifting activities through affiliates in Puerto Rico. We build on work by Slemrod and Grubert (1998) and Suárez Serrato (2018) by identifying firms that could have exploited the US Possessions Corporations Tax Credit as a conduit for profit shifting. We study the firm characteristics that predict that a US corporation would establish an affiliate in Puerto Rico including firms’ patenting activity, R&D intensity, as well as regulatory rules specific to the pharmaceutical industry. We then study whether these firms also exploited other tax havens by using data from SEC filing Exhibit 21 as well as global affiliate data from ORBIS to measure firms’ access to tax havens. Finally, we study whether firms’ access to other tax havens affected their response to the repeal of the US Possessions Corporations Tax Credit and, in particular, whether firms responded by expanding their network of tax haven affiliates.

Monitoring Tax Compliance by Multinational Firms: Evidence from a Natural Experiment in Chile

Sebastian Bustos
,
Harvard University
Corina Ledergerber
,
University of Zürich
Dina Pomeranz
,
University of Zürich
Gabriel Zucman
,
University of California-Berkeley

Abstract

Taxing multinational firms is a challenge faced by tax authorities in developing countries. Some call for governments to devote more resources to monitoring transfer prices. Others believe that this is futile as authorities can never effectively check all intra-group transactions and because a growing number of such transactions are not replicated between third-parties, making arm’s length pricing conceptually flawed. Can middle and low-income countries generate more corporate tax revenue by devoting extra resources to enforcing the current rules that govern the taxation of multinational firms? Or should they design new rules to tax multinational companies? In this paper we present a new cross-country database on the policies used by tax authorities to enforce international corporate taxation throughout the world in order to assess the effectivity of these policies.
JEL Classifications
  • H2 - Taxation, Subsidies, and Revenue