Quantifying the OECD BEPS indicators - An update to BEPS action 11

In 2015 the OECD introduced six indicators to quantify and evaluate base erosion and profit shifting (BEPS) activity over time. In this study, we revisit three selected indicators and point out potential pitfalls when interpreting the indicator results. First, we transparently replicate Indicator 1, which intends to assess the disconnect between financial and real economic activities, and show a moderately decreasing trend of the indicator estimates. Second, replicating Indicator 4, we find that multinational firms have, on average, lower effective tax rates than domestic firms. We confirm this result using a state-of-the-art propensity score matching approach. Third, the replication of Indicator 5, which intends to capture profit shifting through intangibles, shows a stable trend of the annual indicator estimates that extends beyond the OECD’s sample period. Overall, we conclude that the proposed indicators in the Final Report on BEPS Action 11 provide only limited information on the extent of BEPS