taxation and the allocation of risk inside the multinational firm abstract this paper provides the first theoretical and empirical analysis of how taxation shapes the joint allocation of risk and profits inside the multinational firm theoretically we identify three mechanisms through which corporate taxes may shape the within firm allocation of risk 1 transfer pricing rules requiring risk to be compensated with higher expected returns create incentives to shift risk to low tax jurisdictions as a means to shift profits 2 risk averse owners create incentives to allocate risk to high tax affiliates to maximize risk sharing with governments 3 limited loss offset creates incentives to shift risk to affiliates in other countries empirically we show that multinational firms disproportionately allocate risk to low tax countries and that the key mechanism is the nexus between risk and profits established by transfer pricing rules within firm differences in risk explain a significant fraction of the well established correlation between profits and tax rates suggesting that risk shifting is a quantitatively non negligible channel for profit shifting

international taxation and the direction and volume of cross border m as we show that the parent subsidiary structure of multinational firms created by cross border mergers and acquisitions is affected by the prospect of international double taxation specifically the likelihood of parent firm location in a country following a cross border takeover is reduced by high international double taxation of foreign source income at the same time countries with high international double taxation attract smaller numbers of parent firms a unilateral elimination of worldwide taxation by the united states is simulated to increase the proportion of parent firms locating in the united states following cross border mergers and acquisitions from 53 to 58

fdi as an outcome of the market for corporate control theory and evidence abstract much foreign direct investment fdi takes the form of mergers and acquisitions m a it is commonplace in finance to view acquisitions as manifestations of the market for corporate control following on that insight we propose a model of fdi in which headquarters bid to control overseas assets we derive an equation for bilateral fdi stocks that resembles the recently developed fixed effects approach to modelling bilateral trade flows we estimate the model and use its parameters to construct benchmarks for evaluating multilateral inward and outward fdi

corporate taxes and the location of intangible assets within multinational firms intangible assets like patents and trademarks are increasingly seen as the key to competitive success and as the drivers of corporate profit moreover they constitute a major source of profit shifting opportunities in multinational enterprises mnes due to a highly intransparent transfer pricing process this paper argues that for both reasons mnes have an incentive to locate intangible property at affiliates with a relatively low corporate tax rate using panel data on european mnes and controlling for unobserved time constant heterogeneity between affiliates we find that the lower a subsidiary s corporate tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment this effect is statistically and economically significant even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern

repatriation taxes repatriation strategies and multinational financial policy abstract several investment repatriation strategies are added to the standard model of a multinational in which an affiliate is located in a low tax country and is limited to two alternatives repatriating taxable dividends to the parent or investing in its own real operations in our model affiliates can invest in passive assets which the parent can borrow against or in related affiliates which can be used as vehicles for tax favored repatriations we show analytically how the availability of alternative strategies can effect real investment throughout the worldwide corporation we use firm level data for us multinationals to test for the importance of alternative strategies the evidence is generally consistent with the theory particularly the strategies using related affiliates

international corporate tax avoidance a review of the channels magnitudes and blind spots this paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations it surveys evidence on main channels of corporate tax avoidance including transfer mispricing international debt shifting treaty shopping tax deferral and corporate inversions moreover it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting we find that the literature suggests that for the most recent year a 1 percentage point lower corporate tax rate compared to other countries will expand before tax income by 1 5 percent an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time the literature on tax avoidance still has several unresolved puzzles and blind spots that require further research

foreign direct investment competition and industrial development in the host country this paper analyses the impact of foreign direct investment fdi on the development of local firms we focus on two likely effects of fdi a competition effect which deters entry of domestic firms and positive market externalities which foster the development of local industry using a simple theoretical model to illustrate how these forces work we show that the number of domestic firms follows a u shaped curve where the competition effect first dominates but is gradually outweighed by positive externalities evidence for ireland tends to support this result specifically applying semi parametric regression techniques on plant level panel data for the manufacturing sector we find that while the competition effect may have initially deterred local firms entry this initial effect has been outpaced by positive externalities making the overall impact of fdi largely positive for the domestic industry

the repatriation incentive of the foreign dividend exemption system abstractdue to the high taxation of domestic corporate income japanese multinational enterprises have avoided to repatriate foreign profits to japan for quite some time as a consequence the japanese government introduced a new taxation system in 2009 the so called dividend exemption system which was aimed at reducing the effective tax burden of foreign dividends of japanese multinational companies in order to increase tax revenue and stimulate economic growth applying a theoretical framework which allows comparing the repatriation incentive of the old and new japanese tax systems we find that in the long run the tax regime change fails to incentivize foreign subsidiaries to repatriate foreign profits especially subsidiaries with high leverage located in countries with low corporate taxes and low dividend taxes might reinvest rather than distribute their earnings in the dividend exemption method

tax competition when firms choose their organizational form should tax loopholes for multinationals be closed we analyze a sequential game between two symmetric countries when firms can invest in a multinational structure that confers tax savings governments are able to commit to long run tax discrimination policies before firms decisions are made and before statutory capital tax rates are chosen non cooperatively whether a coordinated reduction in the tax preferences granted to mobile firms is beneficial or harmful for the competing countries depends critically on the elasticity with which the firms organizational structure responds to tax discrimination incentives a model extension with countries of different size shows that small countries are likely to grant more tax preferences than larger ones along with having lower effective tax rates

the near optimality of mark up pricing mark up pricing policies result in a loss of profits compared to marginal pricing behavior these losses however are often very small even for large changes in the money supply but by adopting a simple pricing rule the firm does not have to forecast the future and avoids the informational and computational costs required to determine the profit maximizing price each period thus even if these costs are small mark up pricing policies may be optimal or approximately so at least for some firms in a macro model this is likely to imply large monetary non neutralities

international taxation and multinational firm location decisions using a large international firm level data set we examine the separate effects of host and additional parent country taxation on the location decisions of multinational firms both types of taxation are estimated to have a negative impact on the location of new foreign subsidiaries the impact of parent country taxation is estimated to be sizeable consistent with its international discriminatory nature our results show that international double taxation by the parent country despite the general possibility of deferral of taxation until income repatriation is instrumental in shaping the structure of multinational enterprise

relocation of headquarters and international taxation about 6 of multinationals relocated their headquarters to another country in the 1997 2007 period this paper presents empirical evidence on the role of taxes in these relocation decisions it considers a sample of 140 multinationals that relocated their headquarters over the past decade and compares them to a control group of 1943 multinationals that did not relocate it is found that the additional tax due in the home country upon repatriation of foreign profits has a positive effect on the probability of relocation the empirical results suggest that an increase in the repatriation tax by 10 percentage points would raise the share of relocating multinationals by 2 2 percentage points equivalent to an increase in the number of relocations by more than one third furthermore the presence of controlled foreign corporation legislation also has a positive effect on the number of relocations

cross border relocations of headquarters in europe this paper analyzes the relocations of both corporate and regional headquarters hq in a multi country setting on the basis of a dataset of 52 cross border hq relocations in europe during 1996 2006 we document an increasing trend toward relocation push and pull factors affecting hq location choice and catalyzing factors that affect the relocation decision high taxes and a high employment rate represent push factors that we find to increase the likelihood of hq relocation in particular at the mean rate of corporate tax a one percentage point increase in tax translates into a 6 8 increase in hq relocation likelihood in contrast central location and low taxes represent pull factors that increase the attractiveness of the hq location in terms of catalyzing factors we find that export oriented companies and regional hq have a higher tendency to relocate as a whole we extend the existing research by putting forward a conceptual framework of hq relocation decisions and by providing novel empirical evidence on the hq relocation phenomenon our findings contribute to an improved understanding of the determinants of corporate hq relocation decisions and provide important tax policy considerations for public policy decision makers in individual european countries and in the european commission

information gathering and expectation formation under model uncertainty there is little need to emphasize the importance of expectations in modern macroeconomic theory the effectiveness of macroeconomic stabilization policy optimal portfolio allocations and investment behavior to name a few all depend crucially upon how economic agents form their expectations muth 11 took the first step in carefully describing expectation formation in advancing the theory of rational expectations since his work much has been done to expand upon the idea that expectations tend to be distributed for the same information set about the prediction of the theory 11 316 attention has focused on the assumptions that 1 agents know or behave as if they know the true model generating macroeconomic variables this strong assumption may be called model certainty and 2 that they have costless access to the information sets needed to form rational expectations the two are linked an unspecified amount of information is necessary to ensure model certainty so far separate bodies of literature have addressed these issues learning models typified by friedman s 4 work address the model certainty assumption of rational expectations other authors have tried to refine the information side of expectation formation examples are papers by grossman and stiglitz 9 on the external benefits of an individual s information gathering and townsend 12 who assigns different although still arbitrary information sets to different island firms

the location of overseas production and production for export by u s multinational firms abstract the location of overseas manufacturing production is influenced by common factors that operate in all industries notably proximity to the united states and to other markets within industries opposites attract low wage and low capital intensity parents choose high wage countries production for export is attracted by large internal markets in host countries economies of scale in production presumably make large markets economical as export bases another factor is high trade propensities of host countries u s firms tend to export from high wage countries but labor cost is not in general a major influence on the location of export production

tobin s q and the gains from takeovers this paper analyzes the relation between takeover gains and the q ratios of targets and bidders for a sample of 704 mergers and tender offers over the period 1972 1987 target bidder and total returns are larger when targets have low q ratios and bidders have high q ratios the relation is strengthened after controlling for the characteristics of the offer and the contest this evidence confirms the results of the work by lang stulz and walkling and shows that their findings also hold for mergers and after controlling for other determinants of takeover gains in a recent paper lang stulz and walkling lsw 1989 document that the abnormal returns in tender offers are related to the tobin s q ratios of the targets and the bidders in particular they find that target bidder and total returns are higher when takeover targets have high q ratios and bidders have low q ratios where one is used as a cutoff point to separate high q firms from low q firms in fact bidders with high q ratios have significant positive abnormal returns when they engage in a takeover while bidders with low q ratios have significant negative abnormal returns the best takeovers in terms of value creation are those where a high q firm takes over a low q firm the opposite scenario holds for the worst case takeovers low q firms taking over high q firms if q is interpreted as a measure of managerial performance these findings imply that better performing firms also make better acquisitions and that more value can be created from taking over poorly performing companies while the results of lsw are insightful they leave a number of questions unanswered their sample consists only of tender offers several studies have documented that the returns to targets in mergers are smaller than those in tender offers see jensen and ruback 1983 and huang and walkling 1987 it would therefore be useful to see whether the lsw 1989 results hold for a larger sample which includes both mergers and tender offers previous research has also shown that the characteristics of the takeover hostile versus friendly and single versus multiple bidder the form of payment cash versus securities the time period before 1968 1968 1980 1981 and later and the relative size of target and bidder are important determinants of the magnitude of takeover gains and their distribution

effective tax rates and the user cost of capital when interest rates are low abstract interest rates are a key component of both user cost and effective tax rate measures of company taxation and each is regularly used in empirical tests of tax impacts on investment however it is shown that when interest rates are low the two measures are not monotonically related using a simulated sample of observations this feature is found to generate perverse estimates of the effects of taxation on the investment plans of firms

price convergence in the european car market this article examines price convergence in the european union eu car market over the period 1995 to 2005 we find that there is a clear evidence of price convergence among the eu15 countries but not before 1999 moreover countries of the economic and monetary union emu started convergence previously to the eu15 as a whole finally exchange rate changes have significantly contributed to price dispersion over time across countries the results provide significant evidence that trade liberalization and the emu have enhanced the process of regional integration in the european automobile industry even though there is room for further measures to promote integration

the evolution of price dispersion in the european car market car prices in europe are characterized by large and persistent differences across countries the purpose of this paper is to document and explain this price dispersion using a panel data set extending from 1980 to 1993 we first demonstrate two main facts concerning car prices in europe i the existence of significant differences in quality adjusted prices across countries with italy and the u k systematically representing the most expensive markets 2 substantial year to year volatility that is to a large extent accounted for by exchange rate fluctuations and the incomplete response of local currency prices to these fluctuations these facts are analysed within the framework of a multiproduct oligopoly model with product differentiation the model identifies three potential sources for the international price differences price elasticities generating differences in markups costs and import quota constraints local currency price stability can be attributed either to the presence of a local component in marginal costs or to markup adjustment that is correlated with exchange rate volatility the latter requires that the perceived elasticity of demand is increasing in price we find that the primary reason for the higher prices in italy is the existence of a strong bias for domestic brancs that generates high markups for the domestic firm fiat in the u k higher prices are mainly attributed to better equipped cars and or differences in the dealer discount practices the import quota constraints are found to have a significant impact on japanese car prices in italy france and the u k with respect to local currency price stability a large percentage of the documented price inertia can be attributed to local costs and a smaller fraction to markup adjustment that is indicative of price discrimination based on these results we conjecture that the emu will substantially reduce the year to year volatility observed in the car price data but without further measures to increase european integration it will not completely eliminate existing cross country price differences

capital market integration and fiscal sustainability abstract by constructing a two country endogenous growth model with a debt financing government this paper studies the relationship between the sustainability of public finance and increases in inter regional factor mobility to this end it identifies the minimum tax rate that ensures fiscal sustainability against the backdrop of capital tax competition and studies whether competition for mobile capital lowers or improves fiscal sustainability the main findings are as follows i when countries are symmetric increasing capital flows promotes economic growth through the expansion of romer type knowledge spillovers resulting in increased fiscal sustainability in all countries and ii when a marked difference exists between countries tax competition caused by capital movements might lower fiscal sustainability in a country with abundant capital and large outstanding debt

u s worldwide taxation and domestic mergers and acquisitions a discussion abstract harris and o brien 2018 investigate whether u s tax policy distorts u s multinationals mncs investment they find that mncs facing higher repatriation tax costs engage in fewer domestic acquisitions the study re examines the results in two prior studies that found no effect hanlon et al 2015 and a positive effect martin et al 2015 by introducing a new proxy for repatriation tax costs a binary variable for whether the mnc uses the double irish structure we critique the theory underlying the prediction as well as the proxy we conclude that caution should be exercised in taking the results at face value

imperfect information and wage inertia in the business cycle nominal wages have less variation about a trend than the money supply does and the variation is more persistent this inertia in the nominal wage is often cited as the principal source of stagflation this paper explains the phenomenon by appealing to temporary wage inflexibility in an environment where agents cannot directly disentangle permanent versus transitory movements in key state variables a wage equation results that is a distributed lag of previous values of the state variables including money nominal wage variation becomes less sensitive to the money supply as agents ability to detect the permanent evolution of the money supply declines

cross country price dispersion in the euro era a case study of the european car market impact of the euro this paper investigates the effects of the european monetary union on cross country price differences in the european car market the analysis utilizes disaggregate bi annual data on the prices of almost all car models sold in the 15 countries of the european union over 1993 2003 the data refer to identical models with identical specifications and options to identify the euro s effect we exploit the fact that out of the 15 countries in our sample 12 joined euroland at the beginning of 1999 and officially adopted the euro as their national currency at the beginning of 2002 while 3 countries remained outside the monetary union we investigate whether there is a systematic difference in the evolution of cross country price dispersion between euroland members and non members after 1999 our analysis distinguishes between phase i monetary union with national currencies preserved 1999 2001 and phase ii official adoption of the euro as a national currency in 2002 we examine the evolution of both the absolute price differentials across countries and the speed with which deviations from the long term cross country differentials are eliminated we find that in the pre euro era countries that later joined euroland exhibited lower price differentials relative to the base country of the netherlands by approximately 6 the monetary union further reduced these differentials by a small but significant percentage about 1 5 between 1999 and 2001 this reduction happened while the price differentials in non euroland countries increased the price differentials in euroland countries further decreased following the official euro adoption in 2002 however we cannot attribute this decline to the euro as we witness an even faster decrease of price differentials in non euroland countries over the 2002 2003 period despite these reductions cross country price differences remain large even among members regarding the speed of convergence we find that even before 1999 the half life of price shocks was shorter in euroland countries compared to non euroland countries 0 65 versus 1 year however we do not find any evidence that the emu further affected the speed of convergence in a significant manner overall our results suggest a big role for exchange rate stability in reducing international price dispersion and a smaller role for a common currency the surprisingly high remaining international price differentials after the euro suggest the need for additional measures towards integration e g liberalization of the distribution system reduction of high registration taxes in particular countries pinelopi koujianou goldberg and frank verboven

unobserved tax avoidance and the tax elasticity of fdi abstract this paper investigates the tax responsiveness of multinational firms investment decisions in foreign countries distinguishing firms that are able to avoid taxes avoiders from those that are not non avoiders from a theoretical point of view the tax responsiveness of firms crucially depends on this distinction empirically however a firm s ability to avoid profit taxes is inherently unobservable to the researcher to address this problem we use a finite mixture modeling approach which allows us to distinguish avoiders from non avoiders stochastically from a mixture of distributions of the two types of firms using panel data on the universe of foreign affiliates of german multinational firms over the years 1999 2010 we find that investments of tax avoiders do not respond to host country profit taxes at all while those of non avoiders do about 11 of the affiliates are estimated to be able to avoid taxes these investments account for about 58 of the stock of foreign fixed assets held by german multinational firms abroad a one percentage point increase in the statutory corporate profit tax rate of a host country is found to reduce the fixed assets of non avoiders in that host country by 0 81

greenfield versus merger acquisition fdi same wine different bottles relying on a large foreign direct investment fdi transaction level dataset unique both in terms of disaggregation and time and country coverage this paper examines patterns in greenfield gf versus merger acquisition ma investment although both are found to seek out large markets with low international barriers important differences emerge ma is more affected by geographic and cultural barriers and exhibits opportunistic behaviours as it is more sensitive to short run changes such as a currency crisis on the other hand gf is relatively driven by long run factors such as origincountry technological and institutional development or comparative advantage these empirical facts are consistent with the conceptual distinction made between these two modes i e ma involves transfer of ownership for integration or arbitrage reasons while gf relies on firms own capacities which are linked to the origin countries attributes they also suggest that gf and ma are likely to respond differently to policies intended to attract fdi

capital gains taxation and the cost of capital evidence from unanticipated cross border transfers of tax base abstract in a cross border takeover the tax base associated with future capital gains is transferred from target shareholders to acquirer shareholders cross country differences in capital gains tax rates enable us to estimate the discount in target valuation on account of future capital gains we estimate that a 1 percentage point increase in the capital gains tax rate reduces the value of equity by around 0 3 which suggests that the capital gains tax significantly raises firms cost of capital furthermore we find that the implied capital gains tax burden is higher at times of high economic growth and low stock market valuation

macro determinants of fdi inflows to japan an analysis of source country characteristics this paper examines the source country determinants of fdi into japan the paper highlights certain methodological and theoretical weaknesses in the previous literature and offers some explanations for hitherto ambiguous results specifically the paper highlights the importance of panel data analysis and the identification of fixed effects in the analysis rather than simply pooling the data indeed we argue that many of the results reported elsewhere are a feature of this mis specification to this end pooled fixed effects and random effects estimates are compared the results suggest that fdi into japan is inversely related to trade flows such that trade and fdi are substitutes moreover the results also suggest that fdi increases with home country political and economic stability the paper also shows that previously reported results regarding the importance of exchange rates relative borrowing costs and labour costs in explaining fdi flows are sensitive to the econometric specification and estimation approach the paper also discusses the importance of these results within a policy context in recent years japan has sought to attract fdi though many firms still complain of barriers to inward investment penetration in japan the results show that cultural and geographic distance are only of marginal importance in explaining fdi and that the results are consistent with the market seeking explanation of fdi as such the attitude to risk in the source country is strongly related to the size of fdi flows to japan 2007 the authors journal compilation 2007 blackwell publishing ltd

convergence in car prices among european countries this article contributes to the literature on price convergence in europe by investigating the existence of stochastic and deterministic convergence of car prices in the eu15 countries we apply recently developed econometric techniques that allow for multiple structural breaks to an up to date dataset we find considerable evidence of both types of convergence in our sample of countries and car models therefore suggesting a tendency for relative prices to equalize over time in addition we find evidence regarding the importance in this convergence process of both legislative changes taking place in the years 1996 and 2002 and the implementation of economic and monetary union emu

altered states taxes and the location of foreign direct investment in america this paper compares the distribution between u s states of investment from countries that grant foreign tax credits with investment from all other countries the ability to apply foreign tax credits against home country tax liabilities reduces an investor s incentive to avoid high tax foreign locations state corporate tax rate differences of 1 percent are associated with differences of 9 11 percent between the investment shares of foreign tax credit investors and the investment shares of all others suggesting that state taxes significantly influence the pattern of foreign direct investment in the united states copyright 1996 by american economic association

foreignness and exit over the life cycle of firms received wisdom indicates that owing to a liability of foreignness foreign firms exit with greater likelihood than do comparable domestic firms and that the difference attenuates as firms age and overcome the liability we posit that foreign firms are also intrinsically more volatile and footloose than domestic ones and that this leads to an increasing divergence between the exit rates of foreign and domestic firms empirically we find that the difference between exit rates of foreign firms and domestic firms increases with age as exit of foreign firms increases with age while that of purely domestic firms decreases exit rates of domestic based multinationals do not change significantly with age they are between those of foreign and purely domestic firms but are closer to the latter this suggests that the footlooseness observed for foreign firms is due to foreignness more than to multinationality

who bears the burden of international taxation evidence from cross border m as cross border m as can trigger additional taxation of the target s income in the form of non resident dividend withholding taxes and acquirer country corporate income taxation this paper finds that this additional international taxation is fully capitalized into lower takeover premiums in contrast acquirer excess stock market returns around the bid announcement date do not appear to reflect additional taxation of the target s income these findings suggest that international taxation is considered to be burdensome and that the incidence of this taxation is primarily on target firm shareholders

the location of financial sector fdi tax and regulation policy abstract this paper analyzes how corporate taxation and regulatory requirements affect the location of financial sector fdi we use novel information on new financial services entities established by multinational firms in 83 host countries we find a negative effect of host country taxes on the probability of choosing a particular host location we can also confirm a significant influence of the regulatory environment for example stricter equity capital requirements negatively affect location probabilities our empirical approach allows us to provide new insight in how a policy measure of a given country affects other countries by estimating cross country tax and regulation elasticities

repatriation taxes and outbound m as repatriation taxes reduce the competitiveness of multinational firms from tax credit countries when bidding for targets in low tax countries this comparative disadvantage with respect to bidders from exemption countries violates ownership neutrality which results in production inefficiencies due to second best ownership structures this paper empirically estimates the magnitude of these effects the abolishment of repatriation taxes in japan and in the u k in 2009 has increased the number of acquisitions abroad by japanese and british firms by 16 1 and 1 6 respectively a similar policy switch in the u s is simulated to increase the number of u s cross border acquisition by 11 0 the yearly gain in efficiency is estimated to be 108 9 million dollar due to the japanese reform and 3 9 million dollar due to the u k reform simulating such a reform for the u s results in a yearly efficiency gain of 537 0 million dollar

cross border investing with tax arbitrage the case of german dividend tax credits german dividends typically carry a tax credit which makes the dividend worth 42 86 more to a taxable german shareholder than to a tax exempt or foreign shareholder this results in a penalty for foreign investors who buy and hold german dividend paying stocks i document that as a result of the credit the ex day drop exceeds the dividend by more than one half of the tax credit and show that futures and option prices embed more than one half of the tax credit the existence of the credit creates opportunities for cross border tax arbitrage in which foreign holders of german stock transfer the dividend to german shareholders and implies that it is tax efficient for foreign investors to hold derivatives rather than investing directly in german stocks the empirical findings are consistent with costly tax arbitrage activity by german investors who face tax risk due to antiarbitrage rules since dividend tax credits exist in many other countries the findings are potentially of broad interest

diesel price convergence and mineral oil taxation in europe we empirically analyse convergence of european producer and consumer prices for diesel fuel and investigate the role of excise taxation by comparing the speed of convergence of prices and taxes we find a surprisingly fast speed of convergence for consumer prices while this can in part be explained by fuel tourism the main driving force is producer price dynamics tax convergence contributes weakly to price convergence but the overall effect is to slow down consumer relative to producer price convergence

international profit shifting within multinationals a multi country perspective abstract we model the opportunities and incentives generated by international tax differences for international profit shifting by multinationals the model considers not only profit shifting arising from international tax differences between affiliates and parent companies but also from tax differences between affiliates in different host countries our model yields the prediction that a multinational s profit shifting in a country depends on a weighted average of international tax rate differences between all countries where the multinational is active using a unique dataset containing detailed firm level information on the parent companies and subsidiaries of european multinationals and information about the international tax system we test our model and empirically examine the extent of intra european profit shifting by european multinationals on average we find a semi elasticity of reported profits with respect to the top statutory tax rate of 1 3 while shifting costs are estimated to be 0 6 of the tax base international profit shifting leads to a substantial redistribution of national corporate tax revenues many european nations appear to gain revenues from profit shifting by multinationals largely at the expense of germany