Profit shifting of multinational enterprises: evidence from Finland

This thesis studies whether Finnish multinational enterprises react to the tax incentives generated by corporate income tax rate differences and shift their profits to low tax countries. The profit shift-ing of Finnish multinational enterprises is estimated by exploiting an affiliate level panel data set for years 2012-2017. This panel data contains detailed information about the ownership as well as accounting information of subsidiaries that have a Finland-based ultimate owner. Applying an esti-mation method introduced also in previous literature, called Hines-Rice approach, and adjusting it to a fixed effects model results in statistically significant tax semi-elasticity estimates between -2.1 to -2.9. These imply that a 10-percentage point tax rate increase in affiliate's home country is related to decreased reported profit before taxation of 21-29% by an affiliate located in that country. The results are confirmed by several robustness checks that all provide similar conclusions. This sug-gests that Finnish multinational enterprises react to tax rate differences through shifting profits. Additionally, results suggest that debt-shifting channel accounts for about one-fifth of total profit shifting. These results confirm results of previous studies and are in line with the theory of profit shifting.Tutkielman tiivistelmätiedoissa näkyvä hyväksymisvuosi on 2020.The year of approval showing in the abstract of the thesis is 2020