Identification of key companies for international profit shifting in the Global Ownership Network

Abstract

Abstract In the global economy, the intermediate companies owned by multinational corporations (MNCs) have become important players in policy issue, influencing the international profit shifting and diversion of foreign direct investment (FDI). The purpose of this analysis is to identify and analyze high-risk intermediate companies used for international profit shifting. To achieve this aim, we propose a model that focuses on the structure of MNC’s ownership of each affiliate. On the basis of the information in the Orbis database, we constructed the Global Ownership Network (GON) to reflect the relationship between MNCs and intermediate companies. Moreover, we analyzed large MNCs listed in Fortune Global 500. In this analysis, we confirmed the validity of this model by identifying affiliates playing an important role in international tax avoidance. We found that intermediate companies are mainly based in the Netherlands and the United Kingdom, etc., and these companies are located in the jurisdictions favorably to treaty shopping. And it was found that such key companies are concentrated in the IN component of the bow-tie structure, which is the giant weakly connected component with the GON. Therefore, this clarifies that the key companies are geographically located in specific jurisdictions and concentrates on the specific GON components. The key companies are located in the areas that facilitate treaty shopping. Depending on the location of the MNCs, a difference is remarked in the jurisdiction where key companies are located.

Keywords

• Ownership network
• Bow-tie structure
• Profit shifting
• Treaty shopping
• Hierarchical identification