Where in the World Does Partnership Income Go? Evidence of a Growing Use of Tax Havens

Partnerships (including limited liability companies) now report more than one-third of US business profits, but due to complexity and data limitations, economists have had difficulty identifying where a sizable portion of this income goes. Using US federal tax records, this paper describes the ultimate destination of 99 percent of reported partnership income. A larger portion goes to foreign owners than previously thought, mostly to tax havens — more than $1 trillion between 2011 and 2019. Patterns are consistent with arrangements by investment firms to shield investors from reporting or tax obligations. Evidence also suggests increased reporting after implementation of the Foreign Account Tax Compliance Act.