IMF Working Papers

Home or Away? Profit Shifting with Territorial Taxation

By Dominika Langenmayr, Li Liu

September 9, 2022

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Dominika Langenmayr, and Li Liu. Home or Away? Profit Shifting with Territorial Taxation, (USA: International Monetary Fund, 2022) accessed February 15, 2025

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In 2009, the United Kingdom abolished the taxation of profits earned abroad and introduced a territorial tax system. Under the territorial system, firms have strong incentives to shift profits abroad. Using a difference-in-differences research design, we show that the profitability of UK subsidiaries in low-tax countries increased after the reform compared to subsidiaries of non-UK multinationals in the same countries by an average of 2 percentage points. This increase in profit shifting also leads to increases in measured productivity of the foreign affiliates of UK multinationals of between 5 and 9 percent.

Keywords: Multinational firms, Profit shifting, Territorial tax system

Publication Details

  • Pages:

    38

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2022/177

  • Stock No:

    WPIEA2022177

  • ISBN:

    9798400216992

  • ISSN:

    1018-5941