What Will the OECD BEPS Indicators Indicate?

Abstract

 As part of its action plan against base erosion and profit shifting (BEPS), the OECD (2015) has proposed six indicators to measure profit shifting activity. These indicators add to past and ongoing efforts in academic tax research to empirically identify the scale and tax sensitivity of international profit shifting. In this paper, we discuss whether the proposed OECD indicators indeed represent methodological advances and critically assess their informative value. While a certain need for "easy-access" indicators to measure the relevance of the base erosion problem seems justified, our discussion reveals that the indicators come up with certain shortcomings, many of them acknowledged by the OECD (2015) itself, that prevent them from reliably tracing profit shifting activity in available international data. With one notable exception, the OECD's indicators lack consistent counterfactuals and comparison groups which are essential benchmarks for the observed data. Even the most promising approaches require representative and timely data that covers firms' global activity, including tax haven operations. With better access to such highquality micro-level data, it will be more promising to empirically isolate the effects of profit shifting from relocations of real economic activity and value creation.

A study of cross‐border profit shifting channels: Evidence from Australia

“…First, we illustrate an alternative strategy to identify cross‐border profit shifting by FOACs using a benchmark that mimics the situation without profit shifting. A limitation of the six indicators proposed by the OECD to measure BEPS (OECD, 2015b) is that most of them lack consistent comparison groups as an essential benchmark that mimics a situation without profit shifting activities (Heckemeyer et al, 2021). Previous studies (e.g., Dyreng et al, 2008; Kim et al, 2011; Lee & Swenson, 2016; Rego, 2003) use different versions of ETRs as proxies to capture corporate tax avoidance.…”

Minimum Global Tax: Winners and Losers in the Race for Mergers and Acquisitions

“…In subsequent years, debates unfolded over the pitfalls of a "race to the bottom" taxation scenario stemming from competition to attract such efficiency-seeking investments, drawing the attention of policymakers internationally (Heckemeyer et al, 2021). This is the context behind the aggregate negative impact on the dependent variable observed for the 2016-2019 period, with β 1 = −4.10 * * * and β 3 = 2.81 (not significant), as shown in column 5.…”

“…Azémar et al (2020) find that corporate tax competition is stronger when geographically proximate countries share high economic performances, particularly within more developed and internationally integrated areas of the world. A meta-analysis by Heckemeyer et al (2021) on 33 primary studies confirms the existence of corporate tax competition, although the intensity of the phenomenon varies by country size and partisan politics.…”