Promotions-Projekt: Empirical analysis of corporate tax avoidance and tax havens

Sarah Godar (PhD candidate Charles University in Prague; HWR Berlin)
Supervisors: Petr Janský, Charles University Prague, Prof. Martina Metzger, HWR Berlin


Despite numerous data challenges, researchers have established that the multinational corporations’ reported profits are not well aligned with their economic activity across countries. However, it remains controversial to what extent the observed misalignment of profits and activity can be explained by profit shifting and how the related tax revenue losses should be estimated.

In my dissertation, I empirically analyse company-level data on economic activity of multinational corporations and their use of tax havens with the aim of providing new estimates of the scale of profit shifting and tax revenue losses. Exploring different identification strategies and data sources, I examine which tax havens are most important for Germany-based companies and which countries are likely to be most affected by profit shifting of German but also of other multinational corporations.

The first paper uses data on German affiliates of multinational corporations from the Micro Database Direct Investment (MiDi) by the Deutsche Bundesbank. I estimate the semi-elasticity of corporate profits with regard to foreign tax rates and other profit shifting incentives. Based on this, I estimate the extend of profit shifting by German affiliates and extrapolate the resulting revenue losses for Germany. The research further shows that profits of companies with tax haven investors are more elastic with regard to foreign tax rates and also with regard to other changes in foreign tax policy.

Results of the second paper show that the world’s tax havens attract a considerably higher share of German multinational corporations’ profit than economic activity, while in East European countries, most developing countries and some big West European countries reported profits are much lower than economic activity would suggest. The results also support the hypothesis of a headquarter bias in profit-shifting implying that foreign affiliates play a more important role than headquarters in global tax optimization schemes.

In my third and more recent project with several co-authors, we analyse a sample of multinational corporations that voluntarily published their country-by-country reports and try to answer the following research questions: How much tax do multinational corporations pay and where? Is there evidence of aggressive tax planning? Do multinational corporations which voluntarily publish their country-by-country reports pay higher effective tax rates compared to other multinational corporations and do they report a lower share of profits in tax havens?

Related Publications

  • Godar, S., Aliprandi, G., Faccio, T., Janský, P. (2022). The long way to tax transparency: lessons from the early publishers of country-by-country reports. EU Tax Observatory Working Paper No. 10, Dec 2022.
  • Godar, S. (2021). Tax Haven Investors and Corporate Profitability - Evidence of Profit Shifting by German Affiliates of Multinational Firms. FinanzArchiv 77(4): 345-375.
  • Godar, S., P. Janský (2020). Corporate profit misalignment. Evidence from German headquarter companies and their foreign affiliates. Post-Communist Economies 30(6): 726-750.