Tax-avoidance profit shifting by multinational firms: evidence from Vietnam

Abstract

This study investigates the profit-shifting activities of multinational firms in Vietnam from 2006 to 2019. Our results indicate that transfer pricing is the primary method of multinational profit shifting in Vietnam. Moreover, the responsiveness of reported operating profits to tax incentives is found only at subsidiaries of parent companies that originate in tax havens and mainly at large foreign subsidiaries but not smaller ones. We also find a significant shift in tax avoidance practices among foreign firms linked to tax havens after 2017, when stricter regulations aligned with standards by the Organization for Economic Cooperation and Development were enforced. Despite these changes, multinational tax avoidance persists. Our study suggests that cross-border multinational profit shifting is more complicated than previously known, and the dyadic profit-shifting pattern between tax havens and developing countries, such as Vietnam, deserves more attention.