We show that these magnitudes are overstated due to researchers’ misunderstanding of the accounting treatment of indirectly-owned foreign affiliates in the U.S. international economic accounts data.
Our work has far-reaching implications as all country-level MNE data must apply some accounting convention that can make international comparisons difficult.
We explain how this accounting treatment leads to double counting of foreign income and to its misattribution to incorrect jurisdictions.
We demonstrate a simple correction, and show that the correction significantly reduces the magnitude of the BEPS estimates. For instance, our correction reduces an estimate of the U.S. fiscal effects of BEPS from 30-45% to 4-8% of corporate tax revenues lost to BEPS activity of MNEs (Clausing 2016).
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