{
  "id": "R42927",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "R42927",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 416762,
      "date": "2013-01-18",
      "retrieved": "2016-04-06T23:39:20.271649",
      "title": "An Analysis of Where American Companies Report Profits: Indications of Profit Shifting",
      "summary": "This report uses data on the operations of U.S. multinational companies (MNCs) to examine the extent to which, if any, MNCs are moving profits out of high-tax countries (or out of the U.S.) and into low-tax countries with little corresponding change in business operations, a practice known as \u201cprofit shifting.\u201d To do this, the profits reported by American firms in two groups of countries are compared with measures of real economic activity in those locations. The first group consists of the five countries commonly identified as being \u201ctax preferred\u201d or \u201ctax haven\u201d countries, and includes Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland. The second group, which provides a baseline for comparison, consists of five more traditional economies. This group includes Australia, Canada, Germany, Mexico, and the United Kingdom.\nConsistent with the findings of existing research, the analysis presented here appear to show that significant shares of profits are being reported in tax preferred countries and that these shares are disproportionate to the location of the firm\u2019s business activity as indicated by where they hire workers and make investments. For example, American companies reported earning 43% of overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland in 2008, while hiring 4% of their foreign workforce and making 7% of their foreign investments in those economies. In comparison, the traditional economies of Australia, Canada, Germany, Mexico and the United Kingdom accounted for 14% of American MNCs overseas\u2019 profits, but 40% of foreign hired labor and 34% of foreign investment. This report also shows that the discrepancy between where profits are reported and where hiring and investment occurs, as examples of business activity, has increased over time. \nAdditional evidence that profit shifting has increased over time is found from a comparison of business profits with economic output (gross domestic product) in the two country groups. MNC profits as a share of gross domestic product (GDP) in the traditional economies averaged from 1% to 2% between 1999 and 2008, while their profits in the tax preferred countries profits averaged 33% of GDP in 2008, up from 27% in 1999. Individual countries within the tax preferred group displayed more dramatic increases in the ratio of profits to GDP. For example, profits reported in Bermuda have increased from 260% of that country\u2019s GDP in 1999 to over 1000% in 2008. In Luxembourg, American business profits went from 19% of that country\u2019s GDP in 1999 to 208% of GDP in 2008.\nThis report may be of interest to Members of Congress for at least four reasons. First, profit shifting has been the specific target of recent Congressional action, including a September 2012 hearing held by the Senate Permanent Subcommittee on Investigations, as well as several bills introduced in the 112th Congress. Second, anti-abuse provisions have been included in general tax reform proposals in the 112th Congress. Third, most general tax reform proposals would lower the top corporate rate which would diminish the incentive to shift profits. And fourth, to the extent that profit shifting is reduced, federal tax revenues would increase, although the net effect on federal tax revenues would depend on the existence and magnitude of offsetting revenue changes, which, in turn, would depend on the approach taken to curb profit shifting.",
      "type": "CRS Report",
      "typeId": "REPORTS",
      "active": false,
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          "url": "http://www.crs.gov/Reports/R42927",
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      "topics": []
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  ],
  "topics": [
    "Economic Policy"
  ]
}