Seminar: Pascalis Raimondos-Møller, Økonomisk Institut, CBS

Title: True Profit-Shifting.

Abstract: Do multinationals exploit corporate tax differences across countries to their benefit? The answer that this paper gives is affirmative, and as such is similar to the answer given within the profit-shifting literature. However, the novelty of this paper is on the measurement of what "profit" is. While the previous literature uses tax-authority data on reported profits (data that can easily be distorted), we estimate true profit margins (i.e. price--marginal cost ratios) and examine how these margins change with corporate tax differences --- we call such effects true profit-shifting. Using a unique firm-level dataset that identifies multinationals and their ownership structure, we apply the Roeger (1995) method for estimating markups for the multinational concern. We find a robust positive effect of corporate tax differences to price-cost markups. If high markups are interpreted as a sign of market power, our results point to a reason that creates such market power.