# Identification of Key Companies for International Profit Shifting in the Global Ownership Network

## TL;DR

This paper identifies key firms within the global ownership network that are likely to facilitate international profit shifting, using a model based on ownership structure and network analysis of multinational corporations.

## Contribution

It introduces a novel model analyzing ownership network positions to identify firms at high risk of enabling international profit shifting, validated with data from Fortune Global 500 companies.

## Key findings

- Key firms are concentrated in jurisdictions like the Netherlands and UK.
- Key firms are mainly located in the IN component of the network's bow-tie structure.
- Location of key firms correlates with ease of treaty shopping.

## Abstract

In the global economy, the intermediate companies owned by multinational corporations are becoming an important policy issue as they are likely to cause international profit shifting and diversion of foreign direct investments. The purpose of this analysis is to call the intermediate companies with high risk of international profit shifting as key firms and to identifying and clarify them. For this aim, we propose a model that focuses on each affiliate's position on the ownership structure of each multinational corporation. Based on the information contained in the Orbis database, we constructed the Global Ownership Network, reflecting the relationship that can give significant influence to a firm, and analyzed for large multinational corporations listed in Fortune Global 500. In this analysis, first, we confirmed the validity of this model by identifying affiliates playing an important role in international tax avoidance at a certain degree. Secondly, intermediate companies are mainly found in the Netherlands and the United Kingdom, etc., and tended to be located in jurisdictions favorable to treaty shopping. And it was found that such key firms are concentrated on the IN component of the bow-tie structure that the giant weakly connected component of the Global Ownership Network consist of. Therefore, it clarifies that the key firms are geographically located in specific jurisdictions, and concentrates on specific components in the Global Ownership Network. The location of key firms are related with the ease of treaty shopping, and there is a difference in the jurisdiction where key firms are located depending on the location of the multinational corporations.