An empirical study on cross-border profit shifting in Australia

Abstract

This is an empirical study on the cross-border profit shifting engaged in by Australian subsidiaries of foreign multinational enterprises for tax avoidance. The study reveals that in comparison with domestic-owned listed Australian companies, foreign-owned Australian companies utilise intra-group transfer pricing and pay high interest rates on intra-group debts to shift profits out of Australia to avoid Australian tax to a greater extent, which are manifested in their lower gross profit margins and operating profit margins, higher interest expenses but similar leverage ratios, as well as lower pre-tax profits and income tax expenses. Show more