SHS Web of Conf.
Volume 92, 2021The 20th International Scientific Conference Globalization and its Socio-Economic Consequences 2020
|Number of page(s)||7|
|Section||Behavioral Economics and Decision-Making|
|Published online||13 January 2021|
Assessing Profit Shifting in Lithuanian Firms
1 ISM University of Management and Economics, Faculty of Economics, Arkliu st. 18, LT-01305, Vilnius, Lithuania
2 Vytautas Magnus University, Faculty of Economics and Management, S. Daukanto st. 28, LT-44246, Kaunas, Lithuania
* Corresponding author: firstname.lastname@example.org
Research background: Multinational enterprises (MNEs) employ tax avoidance by ability to use differences in tax systems of various countries to successfully incur effective tax rate that is lower than the statutory one. Literature analysis revealed that previous research rarely concentrated on profit shifting practices in small economies. It mostly covered large countries (USA, Germany) or regions (e.g. Europe). Research on Lithuania, as a small open economy characterized by lower corporate income tax rates, is a relevant case for the analysis.
Purpose of the article: The purpose of the article is to assess profit shifting via transfer mispricing in Lithuanian companies.
Methods: Regression analysis with fixed effects was applied to a sample of 3,563 Lithuanian companies for the period of 2010–2018. The data was retrieved from Amadeus database.
Findings & Value added: The results of testing profit shifting channel – transfer mispricing – showed that tax incentives significantly affect earnings of MNEs in the sample while results of domestic firms are puzzling. Earnings of multinationals in the sample are strongly affected by statutory tax rate difference between the subsidiary operating in Lithuania and the parent company in a foreign country. Such results may imply that in small economies like Lithuania (characterized by lower tax rates and lower tax avoidance costs) profit shifting via transfer mispricing is used by MNEs as a channel of corporate tax avoidance.
Key words: profit shifting / transfer pricing / multinational enterprise
© The Authors, published by EDP Sciences, 2021
This is an Open Access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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