Working Paper: CEPR ID: DP16675
Authors: Farid Toubal; Sébastien Laffitte
Abstract: We show that U.S. multinationals record sales and the profit from these sales in tax havens, while their goods and services are physically sold in other countries. We propose a framework illustrating the strategy of sales shifting. Our results reveal the importance of tax havens which attract a disproportionate fraction of worldwide sales. Our quantification shows a large contribution of sales shifting to multinationals’ profit shifting that amounts to $80bn in 2013. Our findings suggest that international corporate tax rules based on sales may not efficiently address profit shifting if the policy designs are unable to identify sales by destination.
Keywords: multinational firms; international taxation; tax avoidance; transfer pricing; tax havens; profit shifting; sales shifting
JEL Codes: F23; H26; H73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| use of tax havens (H26) | manipulation of reported sales (L14) |
| foreign market access (F23) | foreign sales ratio in tax havens (F23) |
| host country tax rates (F38) | foreign sales ratio (F23) |
| tax haven status (H26) | foreign sales ratio (F23) |
| sales shifting (L81) | profit shifting (H26) |