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Identification of base erosion and profit shifting using tax evasion rate

Author

Listed:
  • Michal Friedrich

    (Department of Public Finance, Prague University of Economics and Business, Prague, Czech Republic)

  • Jana Tepperova

    (Department of Public Finance, Prague University of Economics and Business, Prague, Czech Republic)

Abstract

Multinational enterprises (MNEs) use different methods and structures for base erosion and profit shifting (BEPS) to optimize the tax liability of the group. It is of great interest to the relevant countries to be able to identify such practices and react with appropriate measures. The objective of this paper is to verify whether selected MNEs engaged in the digital economy tend to shift profits from the Czech Republic to jurisdictions with lower taxation using the tax evasion rate (TER) indicator and the transactional net margin method (TNNM). Since the TER method has not been tested yet, this paper also aims to demonstrate its application on real world data and to evaluate its usability. On a sample of five MNEs, the analysis showed a potential tendency to shift profits within Europe for four MNEs (Amazon, Apple, Google and Uber) and a potential tendency to shift profits specifically from the Czech Republic for one MNE (Amazon). The analysis shows that TER is suitable as a preliminary indication of possible risks, rather than their exact quantification.

Suggested Citation

  • Michal Friedrich & Jana Tepperova, 2021. "Identification of base erosion and profit shifting using tax evasion rate," Society and Economy, Akadémiai Kiadó, Hungary, vol. 43(1), pages 75-92, March.
    • Handle: RePEc:aka:soceco:v:43:y:2021:i:1:p:75-92
    DOI: 10.1556/204.2020.00026
    Note: The paper was prepared as one of the outputs of a research project of the Faculty of Finance and Accounting at the University of Economics “Economic and institutional aspects of public finance” registered by the Internal Grant Agency of the Prague University of Economics and Business under the registration number F1/7/2019 and as an output of the research project “Fair corporate taxation: Measurement of the impact of the corporate profit shifting on the budget of the Czech Republic” registered by the Czech Science Foundation under the registration number 18-14082S. This paper is based on a final thesis successfully defended at the Prague University of Economics and Business (Friedrich 2019).
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    Citations

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    Cited by:

    1. Daniela PÎRVU & Claudia STANCIU-TOLEA, 2021. "Arguments In Favor Of Introducing The Global Corporate Minimum Tax," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 20(3), pages 63-70.

    More about this item

    Keywords

    base erosion and profit shifting; tax avoidance; multinational enterprises; transfer pricing; transactional net margin method;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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