Profit shifting of multinational corporations worldwide

We exploit the new country-by-country reporting data of multinational corporations , with unparallelled country coverage, to reveal the distributional consequences of profit shifting. We estimate that multinational corporations worldwide shifted over $850 billion in profits in 2017, primarily to countries with effective tax rates below 10%. Countries with lower incomes lose a larger share of their total tax revenue due to profit shifting. We further show that a logarithmic function is better suited for capturing the non-linear relationship between profits and tax rates than linear or quadratic functions. Our findings highlight effective tax rates’ importance for profit shifting and tax reforms. • We exploit the new country-by-country reporting data of multinational corporations. • We reveal the distributional consequences of profit shifting. • We estimate that firms shifted over $850 billion in profits in 2017. • Profits were shifted primarily to countries with effective tax rates below 10%. • Countries with lower incomes lose a larger share of their total tax revenue. • A logarithmic function captures well the relationship between profits and tax rates • We highlight effective tax rates’ importance for profit shifting and tax reforms.