Work detail

Profit shifting of multinational enterprises: A refined FDI approach

Author: Bc. Lukáš Nepivoda
Year: 2019 - summer
Leaders: Mgr. Miroslav Palanský M.A.
Consultants:
Work type: Bachelors
Language: English
Pages: 59
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/202875/
Abstract: Base erosion and profit shifting by multinational enterprises is an issue which
has recently been getting increased attention from many researchers and other
stakeholders. The main objective of this thesis is to quantify the scale of profit
shifting and the resulting tax revenue losses incurred by individual governments. For this purpose, we exploit data on foreign direct investment from the
International Monetary Fund’s database. We begin by testing our main hypothesis that there is a negative relationship between the rate of return on FDI
and the share of investment originating from low-tax jurisdictions. Assuming
that this relationship is negative due to profit shifting, we arrive at a global
estimate of shifted profits in the amount of $611 billion in 2016. Resulting tax
revenue losses reach almost $200 billion which represents 0.39% of countries’
GDP. In total, we deliver estimates for 46 individual countries of which the
majority belongs to the high-income class. Our results suggest that the tax
revenue losses of a number of high-income countries are higher than some of
the existing studies have estimated.

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