Katarzyna Anna Bilicka (Utah State; Google Scholar) presents Organizational Capability and Revenue Shifting (with Daniela Scur (Cornell; Google Scholar)) at UCLA as we speak as a part of its Colloquium on Tax Coverage and Public Finance hosted by Kirk Stark and Jason Oh: 

Good organizational capability drives productiveness and potential taxable earnings, however may additionally allow multinationals (MNEs) to extra effectively re allocate earnings throughout tax jurisdictions, reducing precise taxable earnings. We present that MNE subsidiaries with higher organizational capability report considerably decrease earnings and have the next incidence of bunching round zero reported profitability in high-tax international locations. This sample is just not current in low-tax international locations. Additional, responsiveness to company tax charge adjustments by way of revenue reporting is pushed by companies with good organizational capability. We present our outcomes are according to profit-shifting conduct and rule out key different channels. JEL codes: M11, M02, H26, H32.

Conclusion
We present that the beforehand established hyperlink between organizational capability and profitability has an necessary caveat: for multinationals, it solely holds in low-tax international locations. We doc new patterns of reported profitability throughout international locations making an allowance for heterogeneity within the high quality of administration of MNE subsidiaries, and suggest that these patterns might be finest attributed to revenue shifting actions for these MNEs that may be categorised as aggressive tax avoiders. We discover that practices associated to tractable and predictable manufacturing and MNE-aligned incentives are most definitely to allow such actions. We rule out different explanations corresponding to “actual” efficiency variations, differential take-up of native tax incentives, the standard of knowledge atmosphere, or particular person supervisor high quality.

Our outcomes have necessary implications for the way we perceive the connection between administration and agency efficiency, in addition to how heterogeneity in agency administration high quality can mediate the effectiveness of tax coverage. First, whereas higher subsidiary administration could enhance agency productiveness and “actual” profitability, it additionally appears to cut back reported profitability in high-tax international locations. Decrease reported earnings can result in decrease company tax revenues, having probably necessary welfare implications. Second, the panorama of agency organizational capability could considerably affect the effectiveness of nationwide tax cuts, as we discover the companies that reply to such cuts are usually these which might be well-managed. Additional, whole issue productiveness estimations require correct reporting of inputs corresponding to supplies and capital. If multinationals are systematically mis-reporting such inputs on account of revenue shifting actions this might have necessary implications for productiveness estimates of this group of companies throughout jurisdictions with totally different tax charges. Lastly, the outcomes introduced on this paper are prone to be decrease certain estimates of how giant the impact of administration is for revenue shifting, since earnings reported by companies are typically totally different between tax returns and accounting statements (Bilicka; 2019). Additional exploration of the “actual” impacts of revenue shifting and the local-level determinants of implementation capability are fruitful areas of additional analysis.

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