Working Papers

This paper provides new insights into a key element of the global corporate tax reform agenda: the choice between a source-based and a destination-based corporate tax system. We study the government choice between source-based and destination-based taxes in a two-country model, allowing multinational firms to use transfer pricing to allocate profits across tax jurisdictions. Governments face a trade-off in choosing their tax system : under source-based taxation, high-tax countries suffer from profit shifting but can tax domestic and exporting firms, while under destination-based taxation, exports are untaxed, unlike imports and countries attract profits irrespective of their tax rate. Overall, we show that an exporting country would only unilaterally adopt a destination-based tax if it has a higher tax rate than the source-based country, while an importing country would  prefer a destination-based tax if it is the high-tax country.

This paper previously circulated under the title "Profit Shifting and Equilibrium Principles of International Taxation"

Award: Best paper at the 2021 Workshop on Industrial and Public Economics


Does the complexity of the ownership structure of multinational enterprises' (MNEs) enable tax avoidance? We characterize as complex an MNE's ownership structure in which the headquarter owns its subsidiaries through a chain of intermediaries and we build a measure defined as the mean number of layers between affiliates and the headquarter. We use firm-level cross-country data to show that affiliates belonging to more complex MNEs are more likely to report zero profit, which is consistent with complexity enabling tax avoidance by multinationals. Our results underline that only the more complex MNEs shift profits away from their high-tax affiliates, while MNEs with flat ownership structures do not display such pattern. 

Summary in French (Lettre du CEPII)      Summary in English (CEPII Letter)

Work in Progress

This paper uses newly available microdata from country-by-country reporting (CbCR) to study the profit-shifting behavior of large French multinational firms. We provide a robust methodology to correct CbCR from double counting of intra-group dividends, which we show inflates observed pre-tax profits by about 13%. Using corrected data, we show that about 23% of foreign profits cannot be explained by real activity. We also find that 18% of profits are shifted for tax reasons, with two-thirds going to four tax havens. We also provide evidence on the concentration of profit shifting in the hands of a few large firms: 6% of MNFs account for two-thirds of the total profit shifting.