MNE Business Functions and Corporate Taxation: Evidence from micro-CBCR

• In Event: Innovation and Taxes

Abstract

This paper examines real responses of large multinational enterprises (MNEs) to tax by studying the global allocation of MNE business functions such as manufacturing, sales, R&D, or financial functions. We draw on firm-level Country-by-Country-Reporting (CbCR) data, covering the years 2017 to 2022. Our sample includes over 1,300 individual MNEs with more than 300,000 affiliates across the world. The paper first provides novel descriptive insights on the distribution of MNE business functions across jurisdictions, and their association with economic outcomes. Subsequently, the paper explores the relationship between the location of MNE business functions and corporate taxation. Preliminary findings indicate that higher effective tax rates are associated with a lower prevalence of some business functions, particularly those related to holding functions or the provision of internal group financing. In contrast, more routine functions, such as sales or manufacturing, appear to be less sensitive to average effective tax rates. The results offer valuable insights into the structure of MNEs global value chains, their tax planning strategies, as well as the real economic impacts of MNEs’ responses to taxation.

Authors

• Felix Hugger, OECD

• Samuel Delpeuch, OECD

• Tomas Boukal, Charles University

• Marketa Mala, marketa.mala@fsv.cuni.cz