CEPII, Recherche et Expertise sur l'economie mondiale
The Exorbitant Privilege of High Tax Countries

Vincent Vicard

 Points clés :
  • The US excess return on its foreign assets is no exception: it is common to high tax countries worldwide.
  • Tax motivated proft shifting by multinational companies inflates net infows of FDI income in high tax countries.
  • French firm level data on dividends, reinvested earnings and capital confirm that returns on foreign subsidiaries are larger in low tax countries and tax havens.
  • Quantifications show large aggregate impact on the balance of investment income and returns on cross-border investments.

 Résumé :
The well documented US excess returns on its net foreign assets is no exception at the world level. Excess returns on foreign assets owe largely to yield differential within the FDI asset class and are correlated to the corporate tax rate for a large sample of countries, consistently with tax motivated profit shifting by multinational corporations. Using French firm level data on dividends and reinvested earnings from foreign affiliates, I provide evidence and quantify the impact of corporate tax avoidance on international asset returns. Profit shifting inflates the investment income balance and accounts for the average 2 percentage points return differential between French FDI assets and liabilities. Missing profts in France, estimated at €36 billions or 1.6% of GDP in 2015, are mostly shifted to EU countries.

 Mots-clés : Proft Shifting | Multinational Firms | FDI | Investment Income | Tax Avoidance

 JEL : H26, H25, H32, F14, F23
CEPII Working Paper
N°2019-06, March 2019

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