In trying to explain the drivers of global profit shifting by MNEs we investigate industry-specific variation in profit shifting and identify determinants thereof. Using the ORBIS database we show that intangible asset endowment of subsidiaries and the complexity of MNE groups explain aggregate profit shifting trends and tend to drive industry specific results. We find that subsidiaries with a high intangible to total asset ratio have a semi-elasticity of 1.2 compared to 0.78 for low intangible affiliates, suggesting a significantly larger sensitivity to CIT rate changes. Similarly, subsidiaries belonging to more complex MNE groups have a higher semi-elasticity (1.11) than those that are part of less complex entities (0.81). Moreover, we incorporate country-specific transfer pricing mitigation measures (documentation requirements) into our analysis. We find significant non-linear mitigation effects, which vary depending on the intangible endowment of subsidiaries and complexity of MNE groups. On average, the estimated profit shifting among MNE subsidiaries in our sample is reduced by 60 percent four years after the introduction of mandatory documentation requirements. The findings of our research provide initial insights on the relative profit-shifting risk associated with different sectors of MNE activities which may support the design of anti-avoidance approaches and the allocation of scarce analytical and enforcement resources. (authors' abstract) / Series: WU International Taxation Research Paper Series

This paper outlines the core issues of the introduction of a new PE nexus based on digital presence. It puts forward its essential features and rethinks the foundations of the concept of sourcing for income tax purposes in the global economy. Our proposal of a new PE nexus based on digital presence is also supported by a theoretical reconstruction in the light of a new dimension for the benefit theory. Our work directly relates to Action 1 of the OECD/G20 BEPS Project. However, the development of a new PE nexus is in fact not an instrument to counter BEPS, but reflects a structural revision of the criteria for allocating taxing rights on cross-border business income in the era of the digital economy. This paper should be understood as a discussion paper and first proposal to shed further light on (i) whether there is a theoretical justification for a new PE nexus based on digital presence, (ii) how a new PE nexus based on digital presence could be defined and (iii) whether and how potential implementation issues could be resolved. By publishing the present blueprints for a new PE nexus, the authors wish to provoke a more concrete discussion on this particularly important matter. (authors' abstract) / Series: WU International Taxation Research Paper Series