The Missing Profits of Nations Thomas Tørsløv(-Ludvig Wier -Gabriel Zucman

The Missing Profits of Nations
Thomas Tørsløv (U. of Copenhagen) Ludvig Wier (U. of Copenhagen) Gabriel Zucman (UC Berkeley)

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Main results: . 40% of multinationals’ profits shifted to tax havens
. E.U. is the main loser; U.S. the main shifter
. High losses for the EU can be explained by failure of enforcement due to perverse incentives . Tax competition model not enough to explain ↓ in τK → Policies are key to understand rise & persistence of shifting & in turn decline in corp tax rate 

Introduction 

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-Why are corporate tax rates falling globally? .

 Standard explanation: globalization → competition to attract real capital → race to the bottom . But today’s largest multinationals don’t move much K across borders (don’t even have much tangible K) . Instead they shift accounting profits, including... . ... to places that collect 0 tax (Google in Bermuda) . Tax competition model cannot explain this pattern → Need to study profit shifting, why it rose and persists

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 This paper: New data and explanations 

First contribution is empirical: produce new series of global profit shifting using macro data. Key novelties: . New database: profits of local v foreign corp in each ctry → Complete map of where profits booked globally → Direct estimate of size of profits shifted to havens . Forensic analysis of tax haven data → show out of which countries profits are shifted . Improved macro stats: we provide estimates of GDP, profits, & factor shares corrected for shifting 

Second contribution is theoretical: provide new explanation for persistence of profit shifting 

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Our results

 Main empirical results: . 40% of multinationals’ profits shifted to tax havens . EU is the main loser; US firms are the main shifters Policy failure explains persistence of shifting: . High-tax countries focus enforcement on transactions that shift profits to other high-tax places . They ignore tax havens, where bulk of shifting occurs → In effect, high-tax countries are stealing from each other while letting tax havens flourish

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 Implications for future of taxes and inequality

 Tax competition model: corporate tax rate → 0 . Capital moves → race to bottom inevitable . Progressive income tax will disappear (impossible to enforce with low corp. tax rate: the rich incorporate) . Globalization fuels inequality

 Our results:

 corporate tax may rise in the future . Capital does not move; paper profits do . Policy failures explain this shifting . Can be fixed → corp tax could ↑ even if no coordinato Domestic policies, more than globalization, are key

http://gabriel-zucman.eu/files/TWZ2018Slides.pdf