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Type	Master's Thesis
Scope	Discipline-based scholarship
Title	Profit Shifting of Multinationals; tax motivated income shifting and the role of transfer pricing regulation
Organization Unit	Corporate Finance Theory (Michel Habib)
Authors	Mahmud El Saghir
Supervisors	Jacqueline Haverals Michel Habib
Language	English
Institution	University of Zurich
Faculty	Faculty of Business, Economics and Informatics
Number of Pages	73
Date	2017
Abstract Text	The current debate on profit shifting and tax planning structures of multinational enterprises (MNEs) has reached new heights and has caught attention from media, governments, and the general public. This thesis gives a comprehensive overview on profit shifting techniques of MNEs. To illustrate the theoretical concepts, a practical example based on Google's tax planning structure is discussed. Further, the thesis provides insights into the current Base Erosion and Profit Shifting (BEPS) project initiated by the Organization for Economic Co-operation and Development (OECD), focusing on transfer pricing legislation and the arm's length principle. In addition, an empirical analysis is performed observing 8,726 affiliates across Europe from 2007 to 2016. The analysis provides evidence for profit shifting activities of MNEs. Furthermore, the estimation model includes an interaction term to measure the effectiveness of transfer pricing legislation. The results show a limiting effect of both, transfer pricing documentation requirements and specific transfer pricing penalties. The documentation requirement interaction term is not significant. However, the penalty coefficient indicates a reduction of around 35% when specific transfer pricing penalties are introduced and is significant at the 5% level. This is considerably important to understand the limiting effect on shifting activities. Nonetheless, further research is needed to monitor the effectiveness of the OECD Action Plan and the prevention of BEPS, especially with regards to developing countries.
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