Tax haven investments for Profit-Shifting: evidence from Spanish multinationals

Abstract

ABSTRACT Tax havens may play a key role in the Profit-Shifting (P-S) activity of Multinational Companies (MNCs), since, among other characteristics, they are the territories with the most beneficial taxes for foreign investors. This article shows that Spanish MNCs facing higher tax rates in non-tax havens, and therefore those that stand to gain the most from P-S, are more likely to invest in tax havens. This outcome is robust to at least two different tax haven lists and various definitions of the non-haven tax rate. The size of the MNCs’ activity, their use of intangible assets, and belonging to the Ibex 35 stock index also positively affect the probability of investing in tax havens. By economic sectors, once the endogeneity problem is controlled for, the incentive is greater for manufacturing than for service firms, but it is especially high for financial firms. Additionally, while non-haven tax rates positively influence the number of different tax havens used by firms, they have no effect on the number of affiliates located within them. Finally, the article estimates that Spanish MNCs have been able to save about 4 billion euros per year in Corporate Income Tax in the period 2013–2018 as a result of P-S.