Using Financial Accounting Information to Estimate the Income Shifting of US Multinationals

ABSTRACT Existing estimates of how much income US multinational corporations (MNCs) shift out of the United States differ dramatically, and most cannot identify which specific firms do the shifting. We use data from firms' public financial reports to derive firm‐year estimates of US MNCs' outbound income shifting. We find that aggregate US outbound income shifting is substantially lower than widely cited macroeconomic‐based estimates, with the gap driven primarily by double counting of foreign income in macroeconomic data rather than by differences in firms' sensitivity to tax rates. Income shifting is also highly concentrated among a small number of firms, primarily in intangible‐intensive industries such as computers and pharmaceuticals, while most MNCs shift little or no income. This concentration implies that size‐based thresholds embedded in the OECD's Pillar 2 and the US corporate alternative minimum tax will capture the most active income shifters but may also impose compliance burdens on many firms that shift minimal income. These findings have direct implications for policy‐makers designing international tax rules, tax authorities prioritizing audit resources toward high‐risk income shifters, and investors and lenders assessing MNCs' tax‐related exposures.