Profit shifting by multinational enterprises has long been central to debates on international taxation, fiscal capacity, and corporate governance. Less is known, however, about whether financial markets view profit shifting primarily as a source of value or as a source of risk. This article summarizes recent evidence showing that equity markets appear to price multinational firms’ exposure to profit shifting, especially after the strengthening of international tax-enforcement frameworks. The evidence suggests that investors do not simply reward firms for reducing tax burdens. Rather, they increasingly require compensation for holding stocks exposed to regulatory and enforcement risk. These findings have implications for banks, investors, regulators, and policymakers, as tax enforcement can affect not only public revenues but also firms’ cost of capital and the pricing of multinational activity.
The Market Price of Profit Shifting. How investors respond to multinational tax-planning risk
Fotis Delis (European Commission Joint Research Centre)
