Valeria Merlo (Uni Tübingen)
Taxes, Profit Shifting, and the Real Activities of MNEs: Evidence from Corporate Tax Notches
(zusammen mit Jaqueline Hansen und Georg Wamser)
Abstract: This paper exploits exogenous variation in tax notches created by controlled foreign corporation (CFC) rules to better understand the profit-shifting behavior of multinational enterprises (MNEs). Using new data on CFC rules and bilateral parent-affiliate ownership data, our identification approach allows us to estimate an unbiased profit-shifting semi-elasticity of about 0.22. We provide evidence that the unilateral implementation of anti-tax-avoidance regulation at the parent location leads to profit relocations consistent with tax-minimizing behavior – away from treated affiliates to ‘next-best’ low-tax alternatives. We do not find any evidence that parent countries benefit from this regulation (in terms of repatriated tax base) or that parent firms bear the economic costs (real outcomes of parents remain largely unaffected).