There is a widely-held view that profit shifting by multinational companies to low-tax jurisdictions undermines the ability of developing countries to raise tax revenue. While there is research on the extent of profit shifting out of developed countries, empirical evidence on the magnitude of the problem in developing countries is scarce. This research set out to review the literature that exists, and to investigate methods and available datasets which can be used to gain new insights into the problem. We find that the results of many existing studies on tax avoidance and evasion in developing countries are difficult to interpret for a variety of reasons, including drawbacks in measurement concepts. We discuss some alternative methods and datasets, and present some preliminary evidence on the scale to which profit shifting out of developing countries and into tax havens takes place.
Clemens Fuest and Nadine Riedel