Industry heterogeneity and tax avoidance of the multinational firms: an assessment using public country-by-country reports

This paper investigates industry differences in tax avoidance among multinational enterprises (MNEs) using public country-by-country reporting (CbCR) data. Estimates of the semi-elasticity of profits with respect to effective tax rates (ETRs) indicate that the MNEs shift profits to low-tax jurisdictions and tax havens, but significant industry heterogeneity emerges from the results. Two sectors (information and communication, business and financial services) display the highest levels of tax avoidance. Transport, manufacturing and extractive sectors experience strong increases in profit shifting if the affiliates are located in tax havens. The MNEs operating in the health sector, such as the biomedical firms, show weaker or less consistent evidence of tax avoidance behaviour. Moreover, profit shifting leads to substantial tax revenue losses, unevenly distributed across countries and industries. Despite greater tax transparency and voluntary disclosure by the MNEs, the paper demonstrates that tax avoidance is persistent and effective policy responses should account for industry-specific dynamics.