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Adopting and modifying the approach used by Hines and Rice (1994), we investigate the extent of cross-border profit shifting activities by foreign-owned Australian companies (FOACs) and evaluate the effectiveness of the measures implemented by the Australian government to combat base erosion and profit shifting (BEPS) by multinational enterprises (MNEs). Specifically, we measure the sensitivity of profit before tax reported in Australia by FOACs to the tax rate differentials between Australia and other countries where the related foreign-based MNE groups operate and examine whether such sensitivity decreases after the implementation of BEPS countermeasures. Overall, we find that profit shifting from Australia to low-tax countries took place throughout the 14-year study period, 2007 to 2020. The higher the Australian corporate tax rate relative to the tax rates of immediate parent entity, ultimate parent entity, and the higher the ranking of Australian tax rate relative to those of other countries where the foreign MNEs operate, the lower is the profit reported in Australia. In general, crossborder profit shifting from Australia to low-tax countries has not reduced in the post- BEPS period from 2013 to 2020 after the launch of the BEPS Project by the OECD and the implementation of BEPS countermeasures in Australia, although there is some evidence from breaking down the post-BEPS period by years which shows that profit shifting might have reduced in the year 2019. Such reduction, however, does not sustain in 2020.

Dr. Alfred Tran has been an accounting academic at The Australian National University for more than 26 years and is a researcher in the areas of taxation and financial accounting. He is currently an honorary associate professor in the Research School of Accounting, ANU.

Wanmeng Xu completed a Master of Commerce degree from The Australian National University in 2018 and is currently a doctoral candidate in the Research School of Accounting, ANU.