Thomas R. Torslov
University of Copenhagen,
Øster Farimagsgade 5
Institutional Affiliation: University of Copenhagen
NBER Working Papers and Publications
|June 2018||The Missing Profits of Nations|
with Ludvig S. Wier, Gabriel Zucman: w24701
By exploiting new macroeconomic data known as foreign affiliates statistics, we show that foreign firms are an order of magnitude more profitable than local firms in tax havens, but less profitable than local firms in other countries. Leveraging this differential profitability, we estimate that close to 40% of multinational profits are shifted to tax havens globally each year. The non-haven European Union countries appear to be the main losers from this shifting. We show theoretically and empirically that in the current international tax system, tax authorities of high-tax countries do not have incentives to combat profit shifting to tax havens. They instead focus their enforcement effort on relocating profits booked in other high-tax places. This policy failure can explain the persistence...