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Home or Away? Profit Shifting with Territorial Taxation
Author:
Dominika Langenmayr
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and
Ms. Li Liu
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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 177
Language:
English
Publication Date:
09 Sep 2022
DOI:
https://doi.org/10.5089/9798400216992.001
ISBN:
9798400216992
ISSN:
1018-5941
Pages:
38
Keywords:
profit shifting; territorial tax system; multinational firms; shifted profit; UK multinational; UK subsidiary; difference-in-differences research design; Total factor productivity; Transnational corporations; Corporate income tax; Income; Wages; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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In 2009, the United Kingdom abolished the taxation of profits earned abroad and introduced a territorial tax system. Under the territorial system, firms have strong incentives to shift profits abroad. Using a difference-in-differences research design, we show that the profitability of UK subsidiaries in low-tax countries increased after the reform compared to subsidiaries of non-UK multinationals in the same countries by an average of 2 percentage points. This increase in profit shifting also leads to increases in measured productivity of the foreign affiliates of UK multinationals of between 5 and 9 percent.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund