DP6048 International Profit Shifting within European Multinationals

Author(s): Harry Huizinga, Luc Laeven
Publication Date: January 2007
Keyword(s): corporate taxation, international profit shifting
JEL(s): F23, H25
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6048

The conduct of business activities in two or more countries creates opportunities for international profit shifting, while international tax rate differences create incentives. Using detailed information on both multinational firm structure and the international tax system, this paper examines the extent of intra-European profit shifting by European multinationals. Firm-level estimates of profit shifting can be aggregated to arrive at macro measures of international profit shifting. On average, we find a macro semi-elasticity of reported profits with respect to the top statutory tax rate of 1.43 in Europe, while shifting costs are estimated to be 1.6 percent of the tax base. International profit shifting leads to a substantial redistribution of national corporate tax revenues. Many European nations appear to gain revenues from intra-European profit shifting by multinationals largely at the expense of Germany.