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.