What Do We Know About Base Erosion and Profit Shifting? A Review of the Empirical Literature

By Dhammika Dharmapala. Social Science Research Network, 2014

418 citations recorded by the source corpus.

The issue of tax-motivated income shifting within multinational firms has attracted increasing global attention in recent years. It is of central importance to many current policy debates, including those related to recent initiatives by the OECD on base erosion and profit shifting (BEPS) and to proposals for US tax reform in a territorial direction. This paper provides a survey of the empirical literature on tax-motivated income-shifting within multinational firms. Its emphasis is on clarifying what is known about the magnitude of BEPS. It begins by outlining a simple conceptual framework that helps to clarify aspects of governments’ responses to the BEPS phenomenon and the potential role of the OECD initiative. The paper then discusses different empirical approaches to identifying income-shifting, describes existing data sources, and summarizes the findings of the empirical literature. A major theme that emerges from this survey is that in the more recent empirical literature, which uses new and richer sources of data, the estimated magnitude of BEPS is typically much smaller than that found in earlier studies. The paper seeks to provide a framework within which to conceptualize this magnitude and its implications for policy. It concludes by highlighting the importance of existing legal and economic frictions as constraints on BEPS, and discussing possible ways in which future research might model these frictions more precisely.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/fa10e2d93c96e68ab235e7fffd3352239734fd24

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Citations in the corpus

Research on international business: The new realities (2021, background): “Such “base erosion and profit-shifting” practices (Dharmapala, 2014; Contractor, 2016; Tørsløv et al, 2018; Cooper & Nguyen, 2020) are feasible in bricks-and-mortar firms, but have become commonplace in MNEs when products are sold via digital platforms and many payments are made for the use of intan”
Global distribution of revenue loss from corporate tax avoidance: re‐estimation and country results (2018, background): “Both Dharmapala (2014) and Hines (2014) discuss the relatively low values of estimated sensitivities of reported profits to tax rate differences, but without addressing the possibility of bias because of the Orbis data that underlie most of the studies they examine.”
Offshore Profit Shifting and Domestic Productivity Measurement (2017, neutral): “Dharmapala (2014) provides a comprehensive survey.”
Changes in corporate effective tax rates over the past 25 years (2017, positive): “…to shift income from high-tax jurisdictions to low-tax jurisdictions, including tax havens ( Dharmapala and Riedel, 2013; Dyreng and Markle, 2016; Dharmapala, 2014 ), especially when cross-border transactions are based on intangible assets which are more difficult to value and easier to move…”
The impact of mandated corporate social responsibility: Evidence from India’s Companies Act of 2013 (2016, neutral): “9 Net worth is based on a firm’s “paid up share capital” (the number of shares outstanding, multiplied by the face value at which the share certificates were originally issued), but also takes account of the face value of preferred stock, and adjusts for retained earnings and various reserves (see D”