Highlights :

• Document that U.S. firms geographically disconnect sales and production to avoid paying corporate taxes
• Propose a parsimonious model to understand how firms organize their sales internationally to avoid paying corporate taxes.
• Rely on aggregate data that are publicly available and track affiliate sales not only in manufacturing but also in services sectors that have received less attention in the literature.
• Shows that profit shifting by U.S. owned foreign sales platforms in low tax juridictions amounts to $80bn in 2013.

 Abstract :
Using public macro-level data on activities of multinationals, we document that U.S. firms geographically disconnect sales and production to avoid paying corporate taxes. We revisit both theoretically and empirically the location determinants of foreign platforms and show that market access motives are far less relevant when considering tax havens. We characterize these countries and shed light on the attractiveness of different tax havens for specific sectors of activity. Our quantification shows that profit shifting by foreign sales platforms in tax havens amounts to about $80bn in 2013. Our findings contribute to the recent policy debate on the reform of international taxation.

 Keywords : International Taxation | Tax avoidance | Foreign platforms | Tax havens | Profit shifting | Firms' organization

 JEL : F23, H26, H73


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