Working Paper: NBER ID: w24983
Authors: Thomas Wright; Gabriel Zucman
Abstract: We estimate and attempt to explain the evolution of the taxes paid by U.S. multinationals on their foreign profits since 1966. In the oil sector, taxes paid to oil-producing States have been contained, allowing U.S. firms to earn high after-tax returns. Foreign taxes fell abruptly after the first Gulf War. In sectors other than oil, the effective foreign tax rate has fallen by half since the late 1990s. Almost half of this decline owes to the rise of profit shifting to tax havens. The low foreign taxes paid by U.S. multinationals can explain half of the U.S. cross-border return differential.
Keywords: US multinationals; foreign profits; effective tax rates; profit shifting; oil sector
JEL Codes: F62; H26; N52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Containment of taxes paid to oil-producing states (H71) | Higher after-tax returns for US petroleum firms (L71) |
| Lower effective tax rates in the oil sector (H29) | Higher profitability for US oil multinationals (F23) |
| Profit shifting to tax havens (H26) | Lower effective foreign tax rates for US multinationals in non-oil sectors (F23) |
| Profit shifting strategies (H26) | Boosting after-tax returns on foreign operations (F21) |
| Changes in the tax landscape following the 2017 Tax Cuts and Jobs Act (H26) | Solidified tax advantages for US multinationals (F23) |
| Military protection provided by the US to oil-producing states (F52) | Favorable tax conditions for US firms (H32) |