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Tuesday, April 4, 2023
Güçeri Presents Tax Coverage, Funding And Revenue-Shifting Right this moment At Columbia
İrem Güçeri (Oxford; Google Scholar) presents Tax Coverage, Funding and Revenue-Shifting (with Katarzyna Bilicka (Utah State; Google Scholar) & Michael Devereux (Oxford; Google Scholar)) at Columbia as we speak as a part of its Davis Polk & Wardwell Tax Coverage Colloquium hosted by David Schizer.
Multinational corporations (MNEs) typically pay no tax in high-tax international locations as a result of they shift a big fraction of their taxable earnings to tax havens. We construct a mannequin of tax coverage and funding that includes unobserved heterogeneity in MNEs’ profit-shifting functionality and completely different prices of organising a tax minimization community. The mannequin matches the distribution of taxable revenue and funding in detailed UK tax returns knowledge. We use the mannequin to quantify the coverage tradeoff between elevating tax income by combating tax avoidance (through, for instance, a International Minimal Tax) and attracting funding. The outcomes remedy a longstanding puzzle within the current profit-shifting literature: our mannequin reconciles the variations between earlier micro- and macro-level estimates of profit-shifting elasticities by accounting for in depth margin selections (to report optimistic or no taxable revenue in a jurisdiction). We take a look at the mannequin’s predictions utilizing a reform in Italy that restricted the profit-shifting actions of Italian MNEs as a quasi-natural experiment.
Conclusion
Utilizing administrative knowledge from the UK and international possession info, we doc the patterns of zero taxable earnings reporting by multinationals (MNEs) each descriptively and in a difference-in-difference setting that modified the efficient tax haven tax price for a subset of MNEs that function within the UK. We use these reduced-form observations to information a versatile mannequin that demonstrates excessive profit-shifting conduct that matches the info nicely. Three new takeaways emerge from our evaluation. First, there may be massive unobserved heterogeneity throughout MNEs of their profit-shifting responses to tax system adjustments. Second, the standard convex value mannequin underestimates the typical profit-shifting semi-elasticity with respect to tax price differentials between high-tax jurisdictions and tax havens. Lastly, we quantify the trade-off between combating tax avoidance and rising the price of capital for MNEs that have interaction in tax avoidance. Future work might additional analyze labor market complementarities and make clear broader welfare implications of company tax reform.
https://taxprof.typepad.com/taxprof_blog/2023/04/gpercentC3percentBCpercentC3percentA7eri-presents-tax-policy-investment-and-profit-shifting-today-at-columbia.html
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