draining development.pdf - Khazar University

130 Draining Development?ultimate global owners (in foreign countries) and on which informationon the subsidiary list of the owners is available. Among this subgroup offirms, we find that 63 percent belong to multinational groups with a taxhaven affiliate. One should note that missing information on tax havenconnections introduces noise into the estimation and biases our resultsagainst our working hypothesis, meaning that it would lead us to underestimatethe impact of tax haven presence.Thus, we compare different corporate variables that are expected tocapture profit shifting activities among the subgroup of firms as definedabove. The Orbis data contain information on a wide range of accountingvariables, including unconsolidated corporate pretax profit, tax payments,and debt levels. In table 4A.3 on the website, we provide descriptive statisticsthat discriminate among, first, all firms in the data; second, firmsbelonging to groups that own affiliates in a foreign country; third, firmswith a direct ownership link via a parent firm or a subsidiary to a foreigncountry (this is thus a subset of the second group of firms); fourth, firmsbelonging to a multinational group with an affiliate in a tax haven country;and, fifth, firms having a direct ownership link (via a direct parentfirm or subsidiary) in a tax haven country. The rationale behind investigatinggroups with direct ownership links to foreign countries and taxhavens separately is that group affiliates connected through direct ownershipare presumed to be more closely tied in an economic sense. This isexpected to facilitate profit shifting between the entities.As table 4A.3 shows, the firms included in the analysis show averagetotal asset investments of US$23.3 million. Multinational firms possesslarger asset stocks, with US$98.1 million and US$94.9 million for firmswith any link to a foreign affiliate and firms with a direct link, respectively.Moreover, among the multinational firms, corporations with a taxhaven link are reported to have higher total asset investments than othermultinational firms: at US$140.5 million for firms with any link to a taxhaven country and US$172.3 million for firms with a direct link to a taxhaven. All the differences are statistically significant as indicated by the95 percent confidence intervals around the mean.Table 4A.3 also presents the pretax profit per total assets reported bythe companies in our sample. This may be considered a proxy for thecorporate tax base of the firms. The average pretax profitability of thefirms in our sample is estimated at 0.092. Multinational firms (irrespec-