Tax Havens Blunt Impact of Corporate Tax Cut, Economists Say


They find that multinationals operating in tax havens are far more profitable than locally owned companies in those countries, and that their profits dwarf what they pay workers. They break the numbers down to show the outsize profits are largely because of money being “shifted” — on paper — into those havens.

Large corporations like Apple, Google, Nike and Starbucks all take steps to book profits in tax havens such as Bermuda and Ireland. Their strategies have prompted a crackdown by government regulators, particularly in the European Union, where officials have tried to force companies to pay back taxes they believed are owed to their countries. Mr. Zucman said his research suggested that officials should step up those efforts.

“It’s very striking in the sense that these multinational companies, they are the main winners from globalization. And they are also those who have seen their tax rates fall a lot,” Mr. Zucman said. “This means that other actors in the economy, they have to pay more in order to take up the tax burden.”

Mr. Zucman said the results should cause policymakers to rethink their efforts on several fronts. They suggest, he said, that advanced countries are underestimating economic growth and undercollecting corporate tax revenues, because they are missing the profits that have been shifted on paper by multinational corporations.

Kimberly Clausing, an economist at Reed College who has written and researched extensively about the scope of shifting profits to tax havens, said the research demonstrated that “the decline in the corporate tax is a result of policy, not an inevitable feature of the global economy. This implies that policymakers have the ability to address this problem without losing out in a tax competition game against other countries. But they must have the will to tackle tax havens themselves, instead of directing their fire at other non-haven countries.”

Included in the new tax law were several steps meant to address profit-shifting, including a complicated set of global minimum taxes for multinational corporations. Those steps have frustrated many companies as they wait for the Treasury Department to issue regulations and guidance on how they will be put into effect. Some economists worry that one of the measures could actually encourage companies to move jobs out of the United States.

Mr. Zucman said it was too soon to tell whether those measures would succeed. But he said it was clear that policymakers should worry less about outdoing their allies with corporate tax cuts, and instead consider steps to crack down on profit-shifting, such as taxing profits where companies register their sales.



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