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Multinational corporations and profit shifting: Problems and policy options


Multinational corporations have opportunities, and face competitive pressures, to shift profits from high corporate tax rate to low corporate tax rate countries. Reasons behind the growth, and likely further growth, of profit shifting to reduce global corporate tax paid are explored. The adverse revenue, efficiency and equity effects of profit shifting provide arguments for reforms to the current system of autonomous country corporate income taxation. Four reform options are described, and their pros and cons are assessed: maintain individual country profit measures and augment regulations and international cooperation as proposed by the OECD; all countries adopt a common corporate income tax rate; form a measure of global profit and apportion the global profit to individual countries; and replace the source base income tax with a destination base cash flow tax. Each has some advantages and disadvantages, and none is a silver bullet or an obvious choice.

Author profile

Prof John Freebairn
Professor John Freebairn holds the Ritchie chair in economics at the University of Melbourne. He has degrees from the University of New England and the University of California, Davis. Prior to joining the University of Melbourne in 1996, his preceding career includes university appointments at the ANU, LaTrobe and Monash, and periods with the NSW Department of Agriculture and the Business Council of Australia. Professor Freebairn is an applied microeconomist and economic policy analyst with current interests in taxation reform and environmental economics. - Current at 01 November 2018
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