mondo.international

Research notes · Finance

Do foreign-owned firms report less profit than identical domestic ones?

Comparing UK Tax Returns of Foreign Multinationals to Matched Domestic Firms

Katarzyna Anna Bilicka (2019) · American Economic Review 109(8)

Article ↗ · Replication data ↗ (openICPSR)

The archive requires an account we do not hold, so the files were not opened. What follows rests on the published abstract and on this platform's own observations.

What the authors found

Bilicka uses confidential UK corporate tax return data and finds foreign multinational subsidiaries report taxable profits relative to assets at half the rate of comparable domestic standalone firms. Most of the gap comes from a much higher share of foreign subsidiaries reporting exactly zero taxable profit. She also shows that using published accounting data rather than tax returns produces far smaller estimates — so the standard research approach understates the difference.

What our data adds

That last point is the one with implications for a platform like this one. Bilicka's result is that the gap is visible in tax returns and substantially hidden in accounting data, which is one step closer to the public sources anyone outside a tax authority can use. National statistics are several steps further out again. The United Kingdom appears in this database as a large recipient of intellectual property receipts at 54.4 billion dollars a year, which is a channel of the kind she is measuring the consequences of, and is not evidence of anything about UK firms' tax reporting.

FigureValueIndicator
Foreign subsidiaries' taxable profit rate vs domestic (paper) one half BM.GSR.ROYL.CD
UK, IP receipts 54.4bn USD BX.GSR.ROYL.CD

Every figure here is computed from observations in this database and can be charted, downloaded or queried.

What this cannot show

There is no route from balance of payments aggregates to firm-level taxable profit, and the paper's central methodological finding is that even firm-level accounting data understates the phenomenon. Confidential tax microdata is not a shape this platform can hold at all — not because of the data model but because access to it is legally restricted to tax authorities and approved researchers, which is the right arrangement.

The data behind it

Related notes

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