Assessing Profit Shifting in Lithuanian Firms

Research background: Multinational enterprises (MNEs) employ tax avoidance by ability to use differences in tax systems of various countries to successfully incur effective tax rate that is lower than the statutory one. Literature analysis revealed that previous research rarely concentrated on profit shifting practices in small economies. It mostly covered large countries (USA, Germany) or regions (e.g. Europe). Research on Lithuania, as a small open economy characterized by lower corporate income tax rates, is a relevant case for the analysis. Purpose of the article: The purpose of the article is to assess profit shifting via transfer mispricing in Lithuanian companies. Methods: Regression analysis with fixed effects was applied to a sample of 3,563 Lithuanian companies for the period of 2010–2018. The data was retrieved from Amadeus database. Findings & Value added: The results of testing profit shifting channel – transfer mispricing – showed that tax incentives significantly affect earnings of MNEs in the sample while results of domestic firms are puzzling. Earnings of multinationals in the sample are strongly affected by statutory tax rate difference between the subsidiary operating in Lithuania and the parent company in a foreign country. Such results may imply that in small economies like Lithuania (characterized by lower tax rates and lower tax avoidance costs) profit shifting via transfer mispricing is used by MNEs as a channel of corporate tax avoidance.

The economic growth of small states and small economies in regional economic organizations and integrations: similarities and differences

The authors examine the effect of membership of small states in regional economic organizations and integrations on the growth of GDP. The aim is to use cost-benefi t analysis to answer the question of whether small states, and also small economies, achieve greater economic growth through regional economic organizations and integrations than those small states that are not small economies. Small states, as the subjects of research work, have beenchosen precisely because of their size, here defi ned by quantitative criteria, but taking into account that relational criteria are very important for their positioning in international relations, such as greater exposure to external infl uences and their dependence on membership in regional economic organizations and integrations. The GDP of small states, in an attempt to answer the hypothesis, was followed for a period of twenty years. Characteristics thatdepend on regional affi liation of small states, as well as the similarities and differences between small states which are members of the same regional economic organizations/integrations, were also the subject of this paper.