Good organizational capacity drives productivity and potential taxable profits, but may also enable multinationals (MNEs) to more efficiently re-allocate profits across tax jurisdictions, lowering actual taxable profits. We show that MNE subsidiaries with better organizational capacity report significantly lower profits in high-tax countries. This pattern is not present in low-tax countries. Further, responsiveness to corporate tax rate changes in terms of profit reporting is driven by firms with good organizational capacity. We show our results are consistent with profit-shifting behavior and rule out key alternative channels.
Katarzyna Bilicka and Daniela Scur
26 July 2024
Journal of Public Economics 2382024
DOI: 10.1016/j.jpubeco.2024.105179
https://www.sciencedirect.com/science/article/pii/S0047272724001154?pes=vor
This work is published under POID and the CEP's Growth programme.