Research

We develop a methodology to decompose the tax revenue impact of the global minimum tax introduced in 2024 into several components and quantify its potential impact on profit shifting. We apply the methodology to a dataset comprising 34 thousand country-multinational observations combined from corporate tax returns, financial statements, and global country-by-country reports of all multinationals active in Slovakia in 2020. We find that the global minimum tax has the potential to decrease profit shifting by most multinationals, which are on average likely to pay higher effective tax rates in most countries worldwide post-reform. We find that Slovak corporate tax revenues will increase by 4%, with half of the increase due to its minimum top-up taxes. The other half of the increase is corporate income tax on profits that will no longer be shifted out of the country. We expect the global minimum tax to target 49% of previously shifted profits.

Using matched tender-level public procurement and firm-level ownership data, we document how frequently public procurement suppliers have ownership links to jurisdictions commonly described as tax havens or secrecy jurisdictions. We find that around 5.5% of tenders by value—equivalent to €145 billion annually, nearly the size of the EU’s entire budget—are awarded to firms with ownership links to jurisdictions black- or grey-listed by the EU. The reliance on tax‑haven‑linked suppliers varies widely across member states; in some countries the share exceeds 10%, and for certain havens, such as the British Virgin Islands and Bermuda, the value of tender awards linked to them are worth over 900 per cent of their GDP. We provide descriptive evidence on which jurisdictions appear most frequently in supplier ownership chains and how these patterns relate to standard tax-haven indicators such as effective corporate tax rates and secrecy scores. We also show that tenders co-financed by EU funds and those attracting more bidders are less likely to be won by firms linked to tax havens.

This paper takes the ‘Too much finance’ (TMF) literature further by focussing on data for value added in financial services. This broad measure has been much less used in the literature than total private or bank credit, on the one hand, or stock market capitalisation or activity, on the other. We investigate whether those data are consistent with the standard TMF result, and we consider various alternative measures of financial activity including domestic production, domestic consumption and exports and imports. We also use two stratifications of the data, OECD versus non-OECD and the World Bank's income categories, to see if the relevant relationships differ clearly between different groups, and examine whether results are affected by curtailing the sample to exclude the global financial crisis that began in 2008. We confirm the core TMF result for private credit, including for many stratified groups and regardless of the inclusion of the crisis and later years. However, the findings for value added of the financial sector are less consistent, with more support for a purely negative, linear association with growth. This finding is also echoed for some measures of the international trade in financial services. While the provision of private credit appears to strengthen the economy until a tipping point is reached, the expansion of much other financial sector activity may simply be detrimental. We suggest the need for further research to develop understanding of the impact of growth in different elements of the financial sector, in order to support granular policy prioritisation.

Since 2016, multinationals with a revenue over € 750 million have to submit country-by-country reports to tax authorities to deter tax avoidance. Using a regression discontinuity design, we provide evidence for an increase in affected multinationals’ effective tax rates. However, the most aggressive multinationals with known tax haven presence were only moderately affected. The effect is mainly driven by medium-aggressive firms, which achieved low effective tax rates without tax haven affiliates to shift profits to. The policy was thus effective in combating some tax avoidance but profit shifting to tax havens remains an issue, explaining the push for further policy measures including the global minimum corporate tax rate.

The global financial crisis and leaked documents such as the Panama Papers highlighted the important role of financial secrecy in the global economy. Although international initiatives pressing for more transparency have gained strength, there is little knowledge on how the map of financial secrecy has changed over the past decade and why. We use the internationally recognised Financial Secrecy Index and analyse its five editions between 2011 and 2020. We find that financial transparency related to international standards and cooperation improved much more than transparency in the arguably more substantive areas of ownership registration, transparency of legal entities, as well as tax and financial regulation. Second, we document convergence of financial transparency among jurisdictions. While some of the most secretive countries and jurisdictions became more transparent, many with higher transparency in 2011 became relatively more secretive by 2020. This convergence is driven mainly by the most secretive countries and jurisdictions becoming more internationally cooperative. Third, we map the heterogeneity of financial secrecy across the world and classify 71 countries and jurisdictions into five groups, which cut across conventional geographical divisions, highlighting the need to study secrecy in specific contexts. They do, however, show that while OECD countries are relatively more transparent, their former colonies, with continued links with and dependency on former colonial powers, exhibit little improvement. Put together, our findings show that while some progress towards global financial transparency has been achieved, it is shallow and very uneven, with convergence potentially replacing a race-to-the-bottom dynamic.

Secrecy jurisdictions provide opportunities for nonresidents to escape the laws and regulations of their home countries by allowing them to hide their identities. In this paper we quantify which jurisdictions supply secrecy to which countries and assess how successful countries are in targeting that secrecy with their policies. To that objective, we develop the Bilateral Financial Secrecy Index (BFSI) which maps the financial secrecy faced by 82 countries and supplied to them by 131 jurisdictions, thus providing the study of the world of financial secrecy with unprecedented nuance. We then use the BFSI to evaluate the progress of two recent policy initiatives designed to curb financial secrecy: automatic information exchange (AIE) and the blacklisting of noncooperative jurisdictions. By embedding the role of power in the center of our analytical framework, we reconcile the apparently conflicting findings of the existing literature on the effectiveness of these policies. We show that secrecy jurisdictions engage in selective resistance depending on whom they are dealing with, and that the hypocrisy of Organisation for Economic Co-Operation and Development member countries lies at the heart of the design and operation of the AIE system and the blacklisting exercise. We argue that focusing policy on the most relevant secrecy jurisdictions, which – despite its pivotal role in recent offshore document leaks – only rarely include Panama, would enable countries to more effectively mitigate the harm caused by financial secrecy.

While researchers agree that dividend and interest payments respond to tax treaties, evidence of the magnitude of this response remains scarce. We combine data from the International Bureau of Fiscal Documentation and the International Monetary Fund in a set of 65,000 annual country-pair observations for the 2009–2016 period. We estimate dividend flows to be highly elastic in a cross-country regression and arrive at somewhat lower and less robust estimates for interest income. While our revenue estimates are lower than static estimates which do not reflect elasticities, we show that for some countries the revenue foregone remains non-negligible.

This paper studies the relationship between political connections and reported profits using a newly compiled dataset on all corporate donations to political parties in Czechia during its post-transition period (between 1995 and 2014). I develop a dynamic matching approach to identify non-connected firms that are similar to their connected peers on a range of observable characteristics, including profitability prior to becoming connected. I find that being politically connected is associated with superior reported profits: I estimate conservatively that the connected firms outperform their non-connected but otherwise similar competitors by 8–12% following the establishment of the connection, which is a larger effect than found previously for more developed economies. What is more important, however, I find that the effect virtually vanishes for non-connected firms aligned closely with the public sector. That evidence suggests that other forms of connections, such as personal ties and those established at subnational levels of government, such as regional and municipal governance tiers, are likely to have played a significant role in Czechia during its post-transition period.

Governments worldwide face the difficult task of how to decentralise fiscal means across regions and cities and it is even more challenging when governments are under pressure, such as some post-communist economies in eastern Europe and Asia. A case in point is Georgia, a diverse Caucasian country with internal pressures from regions with independence tendencies and external pressures from Russia. How Georgia’s government decentralises is what we provide new evidence for in this paper using two data sets. First, we use internationally comparable data to evaluate how decentralised the Georgian public finances are. We find that Georgia is in fact one of the least decentralised transition countries and has become less decentralised recently. Second, we use detailed municipality-level data for Georgia to determine the effects of equalisation transfers focused on fiscal decentralisation. We discuss the unequal nature of these transfers and we evaluate three reform proposals for changing them.

Governments’ revenues are lower when multinational enterprises avoid paying corporate income tax by shifting their profits to tax havens. In this paper, we ask which countries’ tax revenues are affected most by this tax avoidance and how much. To estimate the scale of profit shifting, we begin by observing that the higher the share of foreign direct investment from tax havens, the lower the reported rate of return on this investment. Similarly to the United Nations Conference on Trade and Development’s World Investment Report 2015, we argue that the reported rate of return is lower due to profit shifting. Unlike the report, however, we provide illustrative country-level estimates of profit shifting for as many countries as possible, including low-income ones, which enables us to study the distributional effects of international corporate tax avoidance. We compare estimated corporate tax revenue losses, relative to their GDP and tax revenues, of country groups classified by income per capita and we find that there are almost no statistically significant differences across these groups. Furthermore, we compare our results with four other recent studies that use different methodologies to estimate tax revenue losses due to profit shifting. In the first such comparison made, we find that most studies identify some differences across income groups, but the nature of these differences varies across the studies.

The OECD/G20 Base Erosion and Profit Shifting (BEPS) project represents the most ambitious attempt to curb multinational profit shifting through international coordination. Using firm-level country-by-country reporting data for 2300 large multinational groups between 2016 and 2023, we examine the impact of both BEPS and the anticipated effects of the global minimum tax. We document two main findings. First, BEPS coincided with only modest changes in multinational tax outcomes: effective tax rates in profit-shifting hubs increased slightly and reported economic substance—particularly employment—expanded, but the concentration of profits in low-tax affiliates remained largely unchanged. Second, simulations of the global minimum tax indicate a more substantial and targeted impact. Average effective tax rates increase by about 1.9 percentage points, with the largest effects concentrated in offshore investment hubs prone to profit shifting. We estimate additional global corporate tax revenues of roughly €100 billion, with the Side-by-side preserved much of the intended structure of GloBE while introducing relatively limited aggregate distortions.

Excessive financial secrecy facilitates illicit financial flows, which constitute a major developmental challenge for low-income economies and cause significant tax revenue losses for governments around the world. In this paper we estimate the semi-elasticity of cross-border financial assets to changes in financial secrecy and how it differs for countries at various income levels. We develop a new financial secrecy dataset for the 2011–20 period, which covers many specific policies in addition to the previously studied automatic information exchange. We then combine this with data on cross-border financial assets and find that investors do indeed react to changes in financial transparency by relocating their assets to offshore financial centres, which remain, or have recently become, more financially secretive than other countries (here, secrecy jurisdictions). In agreement with our theoretical predictions, we document that this effect is highly non-linear and stronger for portfolio investment than for bank deposits. Overall, we find a much stronger relocation effect for assets originating from lower-income countries.

Research on profit shifting by multinational corporations in developing countries is limited due to a lack of data. In this paper we use, for the first time, novel administrative data on the transactions of multinational corporations operating in Nigeria vis-à-vis related parties in other jurisdictions. The data provides a breakdown of these intra-group transactions into seven categories: (1) tangible goods, (2) services and fees, (3) royalties, (4) interest, (5) dividends, (6) reimbursements, and (7) other. We develop a methodology that uses this data to identify which transactions are most often used by multinationals to shift profits out of Nigeria and estimate their relative importance. We find that profits reported in Nigeria are highly sensitive to the hypothetical tax that would be paid on a transaction’s value in the partner jurisdiction: a 1 per cent increase in the hypothetical tax on outgoing transactions is associated with a 0.28 per cent increase in reported profits in Nigeria. Payments for services and fees, royalties, and interest going from Nigerian companies to affiliates in low-tax countries are the most important channels of profit shifting in Nigeria. We argue that our approach can be used to inform low-cost policy interventions and increase audit efficiency with potentially strong effects on corporate income tax collection.

Leaks of confidential documents from firms facilitating secretive offshore structures have become a key source of insight into the world of financial secrecy, with wide-ranging consequences for exposed individuals. This paper examines whether such leaks also affect agents not directly named, but who use the same schemes and jurisdictions. Linking bilateral cross-border bank deposits to a country pair's cumulative exposure in four major offshore leaks, I find that deposits decline with exposure in the offshore jurisdictions most prominently featured: 100 mentions of a country pair reduce bilateral deposits by about 2.7\%, roughly a quarter of the effect of automatic information exchange. The response builds gradually after publication, with no differential pre-trends, and is absent in placebo samples of non-secretive jurisdictions. Total observed haven deposits do not decline with exposure, indicating that leaks primarily shift deposits away from the most exposed jurisdictions rather than reducing offshore holdings in aggregate. The deterrence effect is concentrated among origin countries with stronger enforcement capacity and in the era of active automatic information exchange: leaked information deters most where and when authorities can act on it.

Corporate tax avoidance hampers domestic revenue mobilization and, with it, the development of lower- and middle-income countries. While a wide range of studies has shed light on the magnitude of profit shifting by multinational corporations, the indirect costs of this behaviour is underexplored. These indirect costs are likely to be skewed based on a country’s level of income. We hypothesize that developed countries tend to recover a larger part of corporate tax revenue losses (primary effects or direct costs) via capital gains and dividend taxes on corporate investors (secondary effects). Furthermore, developed countries can offset tax losses by borrowing in financial markets at very low interest rates (tertiary effect or, together with secondary effects, indirect costs). In this paper, we introduce a dynamical model that includes not only corporate tax revenue losses but also tax revenue collected from capital gains and dividend taxes, as well as government borrowing costs. We use country-by-country reporting data on the operations of multinational corporations to estimate profit shifting, alternative operationalizations of the location of investors to proxy the tax revenues from capital gains and dividend taxes, and yields on government bonds to measure the cost of borrowing. Our results show that when these indirect costs are included, the total cost of profit shifting for developing countries increases significantly, while some developed countries can often offset or recover the majority of the direct costs of profit shifting. The ability of the latter to do this is, however, uneven with, for example, most European countries losing revenues from profit shifting even after indirect effects are taken into account. Only a handful of other countries actually appear to profit from profit shifting—and by an amount that is far smaller, in relation to gross domestic product, than the losses suffered by others.

Study commissioned by the Czech Green Party on taxing net wealth above CZK 111 million at 3.5%, estimating annual revenue of over CZK 58 billion from roughly 4,200 people.

The State of Tax Justice 2020 is the Tax Justice Network's annual report estimating how much tax revenue each country loses to international corporate tax abuse and private offshore tax evasion. Drawing on newly published OECD country-by-country data, it quantifies global tax losses and links them to public health spending during the COVID-19 pandemic.