How can tax administrations use the data they already collect to better identify potential profit shifting? This was one of the questions Skatteforsk brought to the 11th African Tax Research Network (ATRN) Congress in Kigali, Rwanda.
From 22 to 24 September, researchers, policymakers and tax administrators gathered in Kigali for the 11th Annual Congress of the African Tax Research Network. Hosted by the Rwanda Revenue Authority in partnership with the African Tax Administration Forum (ATAF), this year’s Congress focused on “Contemporary Taxation Issues in Africa.” The program brought together research and practical experience from tax administrations across the continent, with a strong emphasis on how evidence can support better tax policy and administration.
This was the second year that Skatteforsk participated as a partner in the ATRN Congress.
Using administrative data to detect potential profit shifting
As part of Skatteforsk’s contribution to the Congress, Professor Ron Davies from University College Dublin and Research Director at Skatteforsk, delivered a masterclass on detecting profit shifting in administrative data and how these methods can support audit targeting.
Profit shifting occurs when multinational companies move profits from one country to another for tax purposes, often towards jurisdictions with lower corporate tax rates. According to figures presented during the masterclass from the Atlas of the Offshore World, around 35 per cent of multinational corporate profits are shifted, and the resulting loss represents around 10 per cent of global corporate tax revenues.
For tax administrations, however, one of the central challenges is not simply knowing that profit shifting occurs but identifying where limited enforcement resources should be directed.
Audits are costly, require specialized expertise, and do not necessarily lead to additional tax revenue. Davies therefore presented an approach designed to help tax administrations use firm-level administrative data to identify companies displaying patterns consistent with potential profit shifting. The purpose is not to prove that an individual company is shifting profits, but to identify unusual patterns that can help authorities prioritize where further investigation may be most valuable.
The approach looks for combinations of indicators. These include multinational status, unusually low profits compared with similar firms, and unusually high levels of activities that can serve as channels for shifting profits, such as trade with tax havens, intra-firm debt, interest payments, royalties and management fees.
Rather than treating one unusual indicator as evidence of profit shifting, the method looks for firms that appear abnormal across several dimensions. Comparing firms with others in the same industry can therefore help distinguish ordinary business variation from patterns that may warrant closer examination.
Evidence from African and European countries
The project presented in Kigali draws on administrative data from seven countries: Ethiopia, Kenya, South Africa and Uganda in Africa, and the Czech Republic, Norway and Portugal in Europe. The data allow researchers to compare the prevalence of potential profit-shifting patterns across countries while also examining which industries and mechanisms appear most relevant.
The analysis also suggests that potential revenue losses can be highly concentrated among a relatively small number of firms. This matters for revenue authorities working with limited audit capacity: better use of administrative data could make it possible to focus resources where the potential revenue gains are greatest.
The masterclass therefore connected directly with a broader theme of the ATRN Congress: how African revenue authorities can make greater use of research, data and evidence when designing tax policy and deciding how to deploy enforcement resources.
From research to collaboration
The Congress also provided an opportunity for Skatteforsk to strengthen its engagement with African tax administrations and research communities.
As part of their trip, the Skatteforsk team met with the Rwanda Revenue Authority to present its research activities, learn more about RRA’s work and discuss the research behind Davies’ masterclass.
In parallel, Skatteforsk and ATAF discussed bilaterally how the existing partnership could develop further, including opportunities for capacity building and stronger research mentorship between the respective teams.
These conversations complement the central purpose of the ATRN network: bringing researchers and tax administrations closer together and strengthening the production and use of African tax research. The growing interest in the Congress reflects that ambition. This year’s event attracted 190 research paper submissions, compared with 120 in 2024.
For Skatteforsk, participation in ATRN provides an opportunity both to share research and to learn directly from the challenges tax administrations encounter.
Read more about the African Tax Research Network and the ATRN Congress.