Profit-shifting from Czech multinational companies to European tax havens

ABSTRACT

Although tax havens have been affecting other countries for decades, only in recent years have the associated challenges been subject to intensive scrutiny in both research and policy areas. We contribute to the growing evidence of corporate tax base erosion and profit-shifting by testing multinational companies’ ownership links to individual tax havens rather than to groups of them, as is the case with most previous research. Our company-level analysis suggests that profit shifts through debt financing from the Czech Republic to Luxembourg, Switzerland and, to a lesser extent, the Netherlands. We have ascertained that tax havens are not limited to tiny islands and may actually be found among European countries. We also provide rough estimates of the impact of this profit-shifting on tax revenues as well as a policy recommendation.

KEYWORDS:

• Corporate tax
• base erosion
• profit-shifting
• multinational company
• tax haven
• Czech Republic

JEL CLASSIFICATION:

• F23
• F36
• H25
• H26

Acknowledgement

The authors would like to thank Tomáš Brzobohatý and David Konečný for their comments.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the Technology Agency of the Czech Republic under grant number TAČR TD020039 and the Czech Science Foundation under grant number GAČR P402/15-24642S. The usual disclaimers apply.