StuW Sonderheft NeSt 2025

StuW Sonderheft NeSt 2025

Abhandlungen – Steuerwissenschaften

S75

Koch / Scheider – The Known Unknown: Tax Avoidance by European Multinationals

tent our estimates differ depending on the headquarter location and the firm size. In all cases, we differentiate between profit shifting before and after 2017. In figure 4, we show the average values for our two profit shift ing proxies (TRD_ res_unw and TRD_res_gdp) before 2018 (upper diagram) and after 2017 (lower diagram) depending on the headquarter country of the multinational. Note that we re port results only for those headquarter countries that are in cluded with at least 100 firm-year observations in our sample.

In figure 5, we perform a similar sample split based on the size of the firms in our sample. We divide the sample into three size buckets based on the amount of total assets according to the consolidated balance sheet. Small firms are in the bottom per centile of total assets, large firms are in the top percentile of to tal assets, and medium firms are in between. Again, we observe clear differences in the extent of profit shifting between these three size buckets. We find no evidence that the largest firms in our sample reduce their effective tax rates through profit shift ing. TRD_res _unw and TRD_res_gdp are positive both before and after 2017. In contrast, small and medium-sized firms re duce their effective tax rates through this tax planning channel by 1.8 to 2.4 percentage points and 1.4 to 2.2 percentage points, respectively, between 2011 and 2017. Similarly, the reduction in profit shifting since then has been concentrated among firms in these size brackets. Testing for the statistical significance of the difference in the profit shifting proxies between 2011 – 2017 and 2018 – 2020 reveals that this difference is statistically signifi cant only for the small and medium-sized firms in our sample, whereas no significant change over time is observed for the large firms. This finding is surprising and important, especially as many policy initiatives against base erosion and profit shift ing focus heavily on the largest multinationals. According to our results, this focus of anti-BEPS legislation may be mislead ing.

Figure 4: Profit shifting and headquarter country

Figure 5: Profit shifting and firm size

This figure shows average effects of profitability differences (TRD_res _unw, TRD_res _gdp) on effective tax rates per headquarter country.

This figure shows average effects of profitability differences (TRD_res _unw, TRD_res _gdp) on effective tax rates per size buckets of firms.

Our results suggest that profit shifting is particularly prevalent and significant in Switzerland, which is known to be a potential target of profit shifting and to have rather weak anti-BEPS leg islation ( Johannson et al., 2017b). Although the extent to which firms from Switzerland reduce their effective tax rates through profit shifting is smaller since 2018, they still achieve tax rate reductions of 3 to 4 percentage points. In contrast, we find no evidence of profit shifting by firms from the four largest Eu ropean economies (France, Germany, Italy, and the United Kingdom), at least since 2018. TRD_res _unw and TRD_res _gdp are on average positive in three out of four countries, and negative but small for the UK. While our methodology by no means allows for a causal interpretation of the results, these re sults may indicate that the restrictive anti-BEPS legislation of these countries effectively prevents firms from profit shifting, or that firms have adjusted their tax planning for other reasons. Altogether, TRD_res_gdp (TRD_res_unw) in 2018 – 2020 is above the level in 2011 – 2017 for nine (seven) out of eleven countries. This difference is statistically significant at least at the ten percent confidence interval in seven (three) countries.

5. Conclusion Our study proposes a novel method for assessing the amount of tax-motivated profit shifting and provides new evidence on the extent of profit shifting by European multinationals. By analyzing tax footnote disclosures from IFRS financial state ments, we document a significant decline in proxies for profit shifting after 2017. Although our analysis does not allow for any causal interpretation of results, our findings seem to sug gest that regulatory efforts – such as the ATAD directives and increased tax transparency requirements – have had a measur able impact. Moreover, our results also reveal considerable het erogeneity across countries and firm sizes, with smaller and medium-sized multinationals continuing to engage in profit shifting, while the largest firms and multinationals from major European economies appear to be less affected. These findings contribute to the ongoing debate on the need for additional regulatory measures, such as the proposed