Work detail

Base erosion and profit shifting in eastern European countries

Author: Mgr. Michal Král
Year: 2016 - summer
Leaders: doc. Petr Janský Ph.D.
Consultants:
Work type: Economic Theory
Masters
Language: English
Pages: 99
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/169508/
Abstract: Corporate tax base erosion and profit shifting has become widely debated topic by academics
and world leaders alike. The need to reform international tax system resulted into G20-OECD
initiative addressing Base Erosion and Profit Shifting and recently thanks to the leak of so
called Panama papers this issue is recognised by the general public as well. The goal of this
thesis is to provide new evidence of profit shifting activities in eastern Europe and to provide
better understanding of these practises. Our main focus is on tax havens that are often at heart
of profit shifting activities. We analyse financial and ownership data for 661,841 companies
from 18 countries for the period of 8 years 2006 – 2013. In our dataset there are 65,002
multinational companies out of which 17,359 have affiliates in tax havens. The evidence
suggests that multinational companies in eastern Europe with ties to tax havens report lower
pre-tax profits, pay lower taxes and hold higher debt ratio compare to other companies which
is consistent with corporate tax avoidance using profit shifting. By examining tax havens in
more detail we found that the most commonly used tax havens in this region are
predominantly Cyprus followed by British Virgin Islands and Luxembourg with the strongest
signs of profit shifting activities exhibiting companies with affiliates in British Virgin Islands.
We also found that the evidence of profit shifting activities was not conclusive for some
countries often labelled as tax havens such as Switzerland or Netherlands. In addition, we find
that countries most suffering by profit shifting using tax havens in eastern Europe are Russia
and Ukraine.
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