Profit Shifting and Tax Policy: Lessons for the US

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Profit Shifting and Tax Policy: Lessons for the US

Postby sherrym » Fri Nov 09, 2012 1:19 pm


Dr. Kazuki Onji -> “Profit shifting and tax policy: Lessons for the U.S.”

Tuesday, November 13th, 2012
3:30-5:00 P.M.
Location: PB192


“You could get rid of most of the confusion of trying to determine arm’s-length prices…by consolidating foreign affiliates” Stanley Surrey (Harvard Law Professor, sometime in the 1930s)

Multinational corporations expend resources shifting profit across countries to reduce tax payments while tax authorities expend resources enforcing rules on arm’s length transaction. To address this issue, Cummings (2011) advocates allowing U.S. resident corporations to consolidate their income with their affiliates located abroad. The literature however has yet to accumulate evidence for informed policy making. The aim of this paper is to draw lessons from the Japanese experience in a similar, though not identical, setting: a single-jurisdiction consolidated tax filing. The key question is whether group corporations with profit shifting opportunities tend to participate in a scheme to combine income. This study therefore asks: when a group of affiliated corporations has an option to file a single tax return based on a combined income, what types of groups would take up the option? The data consists of 2,782 Japanese corporate groups headed by publicly-traded corporations observed over 2002-2007. Results indicate higher likelihood of participation among groups characterized by low correlation in returns among group members, high variance in returns, large number of subsidiaries, and losses accumulated in parents. The significant influence of variance and covariance of returns suggests that a consolidation scheme improves the efficiency of a corporate income tax through reducing profit shifting.

About Dr. Onji
Dr. Kazuki Onji holds a Ph.D. and M.A. in Economics from University of California San Diego. He also holds a BA in Economics (Honors) and BA in Asian Studies from Australia National University. Dr. Onji’s publication record includes work in the areas of Public Finance, Banking, Applied Econometrics and Japan and East Asian Economies. Dr. Onji is currently a Lecturer at the Crawford School of Public Policy at Australia National University.

For more information contact Dr. David Vera (
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