Document originally published in Tax Notes
on March 17, 2008.

Last week we presented estimates of the shifts in profits and economic activity between the foreign sector (treated as a single aggregate) and the United States ("U.S. Multinationals Shifting Profits Out of the United States," Tax Notes, Mar. 10, 2008, p. 1078, Doc 2008-4725 or 2008 TNT 48-3⁾). We calculated the decline in the worldwide effective tax rate and quantified the causes of that decline, estimating a $17.4 billion annual revenue loss for increased profit shifting between 1999 and 2004. This week we will look at shifts within the foreign sector (that is, among foreign countries) and will quantify the factors behind the decline in the foreign effective tax rate faced by U.S. multinational corporations.

The effective foreign tax rate on the foreign earnings of U.S. multinational corporations declined from 31.7 percent in 1999 to 28.7 percent in 2004. If we exclude the profits trapped in a handful of resource-rich, high-tax countries that have a large mining sector, the decline in effective foreign tax rates is larger — from 30.3 percent to 25.2 percent.

                     Table 1. Summary Calculations
                     (dollar amounts in millions)
                           A. All Countries

                                      Using Actual 1999 Profits
                                          ($142.3 Billion)

 Actual and Estimated Foreign Taxes:
 Using 1999 rates                             $45,070
 Using 2004 rates                             $42,944
 Average Effective Foreign Tax Rate:
 Using 1999 rates                              31.7%
 Using 2004 rates                              30.2%

    B. Excluding Eight Countries With Mining Tangible Assets
         Exceeding 60 Percent of Total Tangible Assets

                                      Using Actual 1999 Profits
                                          ($132.5 Billion)

 Actual and Estimated Foreign Taxes:
 Using 1999 rates                             $40,123
 Using 2004 rates                             $37,851
 Average Effective Foreign Tax Rate:
 Using 1999 rates                              30.3%
 Using 2004 rates                              28.6%

                           [table continued]

                                   Using Projected 2004 Profits
                                          ($224 Billion)

 Actual and Estimated Foreign Taxes:
 Using 1999 rates                             $69,205
 Using 2004 rates                             $65,243
 Average Effective Foreign Tax Rate:
 Using 1999 rates                              30.9%
 Using 2004 rates                              29.1%

    B. Excluding Eight Countries With Mining Tangible Assets
         Exceeding 60 Percent of Total Tangible Assets

                                    Using Projected 2004 Profits
                                          ($207.3 Billion)

 Actual and Estimated Foreign Taxes:
 Using 1999 rates                             $60,341
 Using 2004 rates                             $55,915
 Average Effective Foreign Tax Rate:
 Using 1999 rates                              29.1%
 Using 2004 rates                              27.0%

                           [table continued]

                                      Using Actual 2004 Profits
                                          ($258.5 Billion)

 Actual and Estimated Foreign Taxes:
 Using 1999 rates                             $78,262
 Using 2004 rates                             $74,069
 Average Effective Foreign Tax Rate:
 Using 1999 rates                              30.3%
 Using 2004 rates                              28.7%

 B. Excluding Eight Countries With Mining Tangible Assets Exceeding
              60 Percent of Total Tangible Assets

                                      Using Actual 2004 Profits
                                          ($230.9 Billion)

 Actual and Estimated Foreign Taxes:
 Using 1999 rates                             $62,102
 Using 2004 rates                             $58,247
 Average Effective Foreign Tax Rate:
 Using 1999 rates                              26.9%
 Using 2004 rates                              25.2%

 Source: Calculations in Table 3.

This 5 percentage point decline in five years is due to a combination of three factors: (1) foreign governments lowering their corporate tax burdens; (2) U.S. corporations shifting real economic activity from high-tax to low-tax countries; and (3) U.S. corporations shifting profits from high-tax to low-tax countries. As shown in the calculations that follow, each of these three factors contributed about equally to the decline in the foreign effective tax rate. Figures 1 and 2 summarize the results.

Unlike last week's findings, the results presented here show no direct implications for U.S. taxes. This week's results, however, indicate that profit shifting is a problem for high-tax foreign jurisdictions as well as the United States and that the tax incentive for U.S. corporations to shift economic activity to foreign jurisdictions is increasing.

Table 1 summarizes the results illustrated in figures 1 and 2. (The values in Table 1 referred to in this paragraph are in bold.) Panel A shows that the foreign effective tax rate including all countries declined from 31.7 percent in 1999 to 28.7 percent in 2004. Panel B presents the same information but excludes eight jurisdictions that have large mining sectors. Among the remaining jurisdictions, the effective foreign corporate tax rate declined from 30.3 percent to 25.2 percent.

For reasons explained in the following section, the results in Panel B are probably more useful for understanding the behavior of U.S. multinationals. Panel B can be used to break down the decline in the effective foreign tax rate into three parts.

        Table 2. Countries With Mining and High Tax Rates, 2004
                     (dollar amounts in millions)

                   Total Tangible  Tangible Capital                  Effective
   Jurisdiction       Capital      of Mining Sector   Mining Ratio    Tax Rate

 Nigeria              $5,737             $5,556            97%         80.9%
 Other Middle East     3,969              3,624            91%         53.7%
 Indonesia             6,526              5,549            85%         44.6%
 Egypt                 1,864              1,516            81%         47.5%
 Other Africa         10,992              8,423            77%         41.1%
 Peru                  2,935              2,154            73%         34.0%
 Saudi Arabia            110                 79            72%           *
 Norway               13,343              9,235            69%         69.7%

 Source: Data on tangible assets by industry are from Table
 3.B7 of the 2004 Bureau of Economic Analysis Survey. Details are in
 the notes to this article.

 * In Saudi Arabia in 2004, taxes and before-tax profits in 2004 were
 $297 million and -$139 million, respectively.

First, there is the portion of the decline due to a drop in within-country tax rates — from 30.3 percent to 28.6 percent. The latter figure was calculated by multiplying 1999 profits by 2004 tax rates. That's a decline of approximately 1.7 percentage points.

Second, there is the portion of the decline due to shifting of real economic activity. This corresponds to the fundamental premise in the practical allocation of profits for tax purposes that profits are roughly proportional to measurable economic activity. For our purposes, we have assumed that profit growth corresponding to changes in real economic activity (and not due to artificial profit shifting) grows at the same rate as the average of the growth rates of assets, tangible capital (property, plant, equipment), sales, and employee compensation. As real activity moves from high- to low-tax countries, profits decline from 28.6 percent to 27 percent — a decline of approximately 1.6 percentage points.

Third, there is the portion of the decline due to profit shifting in excess of the portion due to movements in real activity. Actual profits shifted even more than projected profits into low-tax countries, reducing the average effective foreign tax rate from 27 percent to 25.2 percent — a decline of approximately 1.8 percentage points.

Mining (Not Data)

Looking at the data on taxes and profits, one is struck by the high tax rates paid on large amounts of profits in some countries. It turns out that those countries are rich in natural resources, mostly petroleum. Table 5 shows that countries with a high concentration of mining activity among U.S. multinationals had effective tax rates far above the 25.2 percent average in other countries.

              Table 3A. Majority-Owned Foreign Affiliates
               of U.S. Multinational Corporations, 1999
                     (dollar amounts in billions)

                     Number of      Adjusted        Tangible
  Jurisdiction      Affiliates       Assets         Capital     Sales

    All               21,042        $3,525.4        $592.9     $2,218.9
  1 Canada             1,859           306.8          75.7        281.3
  2 United
    Kingdom            2,535         1,037.7         119.4        345.6
  3 Ireland              394            77.2           8.1         58.4
  4 Japan                651           241.3          18.4        121.8
  5 Netherlands        1,117           187.0          15.2        117.6
  6 Germany            1,327           228.7          36.6        203.3
  7 Switzerland          462            83.4           4.0         70.9
  8 Bermuda              296           115.0           4.0         19.3
  9 Mexico               802            71.2          20.4         81.5
 10 France             1,174           123.3          22.2        124.1
 11 Singapore            439            62.8           9.7         78.6
 12 Australia            773            92.9          33.6         59.7
 13 Norway               165            18.0          10.1         13.9
 14 Belgium              542            75.7           9.8         57.1
 15 Italy                680            59.9          10.6         68.6
 16 Other
    Africa               216            18.2           8.6          9.5
 17 Hong Kong            502            64.3           8.9         47.3
 18 Indonesia            140            20.1          13.0          9.1
 19 China                453            24.5           8.8         20.4
 20 Nigeria               43             7.1           3.8          4.2
 21 Spain                533            39.8           9.1         47.7
 22 Malaysia             181            18.3           6.3         21.8
 23 Cayman
    Islands              245            68.0           2.4         10.5
 24 Other
    Europe               162            14.5           7.2          6.4
 25 Brazil               533            79.4          25.7         56.1
 26 Sweden               319            31.9           4.7         29.6
 27 Other
    Middle East           49             4.3           1.9          2.6
 28 Taiwan               215            26.6           2.7         18.8
 29 Thailand             181            17.3           7.1         14.6
 30 South
    Korea                195            12.2           3.4         11.3
    All Other          3,859           297.9          81.5        207.6

                           [table continued]

                                                    Before-
                      Employee        Foreign         Tax       Effective
                    Compensation       Taxes        Profits      Tax Rate

    All               $254.9           $45.1        $142.3         31.7%
  1 Canada              32.2             6.4          18.2         35.0%
  2 United
    Kingdom             48.9             6.4          17.8         35.8%
  3 Ireland              2.8             1.1          11.4          9.6%
  4 Japan               15.7             4.1           9.0         45.4%
  5 Netherlands          7.7             1.9           6.5         28.4%
  6 Germany             32.4             3.2           8.2         38.8%
  7 Switzerland          4.1             0.7           4.1         17.6%
  8 Bermuda              0.3             0.2           3.7          6.1%
  9 Mexico               7.8             2.2           6.4         33.5%
 10 France              22.0             2.0           4.5         43.7%
 11 Singapore            3.4             0.5           3.8         14.2%
 12 Australia            9.1             1.0           3.2         30.9%
 13 Norway               1.9             1.1           2.0         55.8%
 14 Belgium              6.5             1.0           3.2         30.1%
 15 Italy                8.5             1.8           3.8         47.4%
 16 Other
    Africa               0.6             0.7           1.2         64.1%
 17 Hong Kong            3.6             0.4           3.5         12.6%
 18 Indonesia            0.6             1.1           3.0         36.2%
 19 China                1.7             0.2           1.0         23.6%
 20 Nigeria              0.2             1.1           1.7         63.6%
 21 Spain                5.9             0.9           3.2         28.1%
 22 Malaysia             1.1             0.2           1.7         13.2%
 23 Cayman
    Islands              0.4             0.2           1.8          9.1%
 24 Other
    Europe               0.5             0.2           0.3         49.0%
 25 Brazil               7.5             0.6           0.9         59.4%
 26 Sweden               3.2             0.4           1.5         28.8%
 27 Other
    Middle East          0.2             0.7           1.2         58.7%
 28 Taiwan               1.6             0.3           1.3         23.0%
 29 Thailand             0.8             0.2           0.8         28.8%
 30 South
    Korea                1.3             0.4           1.2         31.0%
    All Other           22.1             4.0          12.2         32.9%

 Source: U.S. Department of Commerce, Bureau of Economic
 Analysis. Assets exclude equity investments in other affiliates.
 Before-tax profit is net income plus foreign income tax minus income
 from equity investments. The effective tax rate is foreign income tax
 divided by before-tax profits. Details are in the notes to this
 article.

Why are rates so high in those countries? The theory of tax competition says that as capital becomes increasingly mobile, the rate of tax on income from those profits will be driven down. And in fact we are observing a general decline in effective tax rates around the globe.

But there are exceptions, as shown in tables 2 and 5. And this is completely consistent with the theory of tax competition because that theory applies only to mobile capital. Mining and oil extraction activities cannot be moved to Ireland, Bermuda, and Switzerland. Governments in host countries — like oil-rich Nigeria and Norway — extract high taxes from multinationals because they can do so with little fear of losing foreign investment.

              Table 3B. Majority-Owned Foreign Affiliates
               of U.S. Multinational Corporations, 2004
                     (dollar amounts in billions)

                     Number of      Adjusted       Tangible
  Jurisdiction      Affiliates       Assets         Capital      Sales

    All               22,819        $6,607.6        $766.9     $3,312.5
  1 Canada             1,799           530.6         122.1        430.0
  2 United
    Kingdom            2,749         1,867.5         127.4        457.4
  3 Ireland              510           286.4          13.8        134.4
  4 Japan                697           446.3          28.0        185.0
  5 Netherlands        1,319           417.2          20.9        143.9
  6 Germany            1,448           311.4          49.7        251.3
  7 Switzerland          532           186.5           6.8        135.9
  8 Bermuda              351           255.0           4.7         47.9
  9 Mexico               834            94.2          25.5        115.2
 10 France             1,244           189.3          31.0        170.6
 11 Singapore            477           100.4          10.0        133.9
 12 Australia            774           140.9          30.2         86.2
 13 Norway               169            35.0          17.3         26.8
 14 Belgium              561           191.0          12.3         70.6
 15 Italy                678            93.3          16.8         98.6
 16 Other
    Africa               265            45.8          20.5         22.2
 17 Hong Kong            474           146.2           5.4         63.5
 18 Indonesia            145            24.5          11.1         13.4
 19 China                652            49.7          12.4         62.1
 20 Nigeria               66            15.7           8.6          7.9
 21 Spain                576            83.2          14.9         70.1
 22 Malaysia             194            23.9           8.1         35.3
 23 Cayman
    Islands              363           221.7           2.1         20.0
 24 Other
    Europe               239            39.1          14.3         18.9
 25 Brazil               535            72.0          18.5         69.3
 26 Sweden               343            65.0          11.3         44.7
 27 Other
    Middle East           55             8.8           4.3          7.7
 28 Taiwan               220            66.0           4.7         31.1
 29 Thailand             211            30.3           7.4         29.2
 30 South
    Korea                246            29.3           6.0         25.2
    All Other          4,093           541.5         100.9        304.2

                           [table continued]

                                                    Before-
                      Employee        Foreign         Tax       Effective
                    Compensation       Taxes        Profits     Tax Rate

    All               $331.6           $74.1        $258.5         28.7%
  1 Canada             41.6              8.6          29.8         29.0%
  2 United
    Kingdom            64.0              8.4          18.3         45.8%
  3 Ireland             4.6              1.9          23.5          8.2%
  4 Japan              19.0              6.1          16.7         36.6%
  5 Netherlands        10.7              2.9           9.0         32.0%
  6 Germany            39.2              3.0           6.9         43.5%
  7 Switzerland         5.7              1.1          10.1         11.3%
  8 Bermuda             0.2              0.5          10.1          4.8%
  9 Mexico             11.0              2.3           6.9         32.6%
 10 France             27.8              2.6           8.6         30.6%
 11 Singapore           3.7              0.9           8.8         10.5%
 12 Australia          12.8              1.5           7.7         19.3%
 13 Norway              2.1              5.3           7.6         69.7%
 14 Belgium             8.2              0.9           5.9         15.0%
 15 Italy              11.7              2.3           4.2         54.1%
 16 Other
    Africa              1.2              2.7           6.6         41.1%
 17 Hong Kong           3.8              0.7           4.0         17.0%
 18 Indonesia           0.9              1.9           4.2         44.6%
 19 China               3.9              0.9           5.1         17.0%
 20 Nigeria             0.3              3.1           3.8         80.9%
 21 Spain               8.6              1.0           2.4         42.8%
 22 Malaysia            1.4              0.7           3.1         21.5%
 23 Cayman
    Islands             0.4              0.1           2.8          3.6%
 24 Other
    Europe              1.5              0.9           3.9         24.0%
 25 Brazil              6.7              1.3           3.2         41.6%
 26 Sweden              6.4              0.2           2.6          5.8%
 27 Other
    Middle East         0.4              1.5           2.8         53.7%
 28 Taiwan              1.9              0.7           2.7         28.0%
 29 Thailand            1.1              0.8           3.1         24.8%
 30 South
    Korea               2.9              0.7           2.6         25.8%
    All Other          28.1              8.7          31.7         27.5%

 Source: U.S. Department of Commerce, Bureau of Economic
 Analysis. Assets exclude equity investments in other affiliates.
 Before-tax profit is net income plus foreign income tax minus income
 from equity investments. The effective tax rate is foreign income tax
 divided by before-tax profit. Details are in the notes to this
 article.

In this analysis, we present results with and without those eight mining-intensive economies. We think the results excluding those jurisdictions are more informative for assessing the behavioral responses of U.S. multinational corporations to taxes. Including mining-intensive countries in the analysis veils the effects taxes can have on multinational investments and profit shifting. Excluding them allows us to see the full effects of taxes on multinational corporations that can move their investment and profits across international borders.

Country-by-Country Calculations

The following tables provide the details behind the calculations presented so far. Tables 3A and 3B show the basic data for 1999 and 2004 for 30 jurisdictions. Jurisdictions are ranked by the sum of 1999 and 2004 before-tax profits.

     Table 4. Growth of Measure of Business Activity and Before-Tax Profits
                       Ratio of 2004 Value to 1999 Value

                      Adjusted           Tangible
   Jurisdiction         Assets           Capital           Sales

    All                  1.87             1.29             1.49
 1  Canada               1.73             1.61             1.53
 2  United
    Kingdom              1.80             1.07             1.32
 3  Ireland              3.71             1.70             2.30
 4  Japan                1.85             1.53             1.52
 5  Netherlands          2.23             1.38             1.22
 6  Germany              1.36             1.36             1.24
 7  Switzerland          2.24             1.72             1.92
 8  Bermuda              2.22             1.17             2.49
 9  Mexico               1.32             1.25             1.41
 10 France               1.54             1.40             1.37
 11 Singapore            1.60             1.03             1.70
 12 Australia            1.52             0.90             1.45
 13 Norway               1.95             1.71             1.92
 14 Belgium              2.52             1.25             1.24
 15 Italy                1.56             1.59             1.44
 16 Other Africa         2.52             2.37             2.33
 17 Hong Kong            2.27             0.61             1.34
 18 Indonesia            1.22             0.85             1.48
 19 China                2.03             1.42             3.05
 20 Nigeria              2.20             2.27             1.85
 21 Spain                2.09             1.63             1.47
 22 Malaysia             1.30             1.30             1.62
 23 Cayman
    Islands              3.26             0.85             1.91
 24 Other Europe         2.70             1.99             2.95
 25 Brazil               0.91             0.72             1.24
 26 Sweden               2.04             2.39             1.51
 27 Other Middle
    East                 2.03             2.28             2.97
 28 Taiwan               2.48             1.73             1.66
 29 Thailand             1.75             1.05             2.01
 30 South Korea          2.40             1.76             2.24
    All Other            1.82             1.24             1.47

                               [table continued]

                                       Average of
                      Employee         Preceding         Before-Tax
   Jurisdiction       Compensation     Four Factors        Profit

    All                  1.30             1.49             1.82
 1  Canada               1.29             1.54             1.64
 2  United
    Kingdom              1.31             1.37             1.03
 3  Ireland              1.61             2.33             2.05
 4  Japan                1.21             1.53             1.85
 5  Netherlands          1.40             1.56             1.38
 6  Germany              1.21             1.29             0.84
 7  Switzerland          1.39             1.82             2.47
 8  Bermuda              0.76             1.66             2.78
 9  Mexico               1.41             1.35             1.08
 10 France               1.26             1.39             1.91
 11 Singapore            1.08             1.35             2.33
 12 Australia            1.40             1.32             2.39
 13 Norway               1.11             1.67             3.80
 14 Belgium              1.27             1.57             1.81
 15 Italy                1.38             1.49             1.11
 16 Other Africa         1.79             2.25             5.74
 17 Hong Kong            1.03             1.31             1.13
 18 Indonesia            1.40             1.24             1.42
 19 China                2.23             2.18             4.95
 20 Nigeria              1.59             1.98             2.21
 21 Spain                1.45             1.66             0.75
 22 Malaysia             1.26             1.37             1.87
 23 Cayman
    Islands              0.97             1.74             1.57
 24 Other Europe         2.84             2.62            11.57
 25 Brazil               0.89             0.94             3.44
 26 Sweden               1.96             1.98             1.76
 27 Other Middle
    East                 1.55             2.21             2.37
 28 Taiwan               1.21             1.77             2.06
 29 Thailand             1.52             1.58             3.74
 30 South Korea          2.19             2.15             2.16
    All Other            1.27             1.45             2.60

 Source: Underlying data from the U.S. Department of Commerce, Bureau of
 Economic Analysis, as presented in Table 1, panels A and B. See notes for
 details.

Table 4 shows our measures of the growth of economic activity and how they were calculated. Take Canada, for example. From 1999 to 2004, assets of U.S. multinationals grew by 73 percent, tangible capital by 61 percent, sales by 53 percent, and employee compensation by 29 percent. The average growth of those four factors — 54 percent — is the projected rate of growth of profits attributable to changes in economic activity. Actual profits grew by 64 percent.

Table 5 shows per-country calculations behind those shown in Table 1. The totals shown in the top line of Table 5 are the source of the effective tax rates shown in Panel A of Table 1. The totals shown in the second line of Table 5 are the source of the effective tax rates shown in Panel B of Table 1. The figures below these two lines were each estimated on a per-country basis.

The two sources for all the data in this article are datasets described in:

• U.S. Department of Commerce, Bureau of Economic Analysis, "U.S. Direct Investment Abroad, Final Results of the 1999 Benchmark Survey," Mar. 2004.
• U.S. Department of Commerce, Bureau of Economic Analysis, "U.S. Direct Investment Abroad, Final Results of the 2004 Benchmark Survey," undated.

           Table 5. Estimates of Profits and Taxes for Computation
                             of Effective Tax Rates

                               Before-Tax Profits

                      1999             2004         2004
    Jurisdiction      Actual         Projected     Actual

    All               $142,312       $212,092      $258,507
    All
    except
    mining             132,477        207,297       230,908
 1  Canada              18,200         28,039        29,770
 2  United
    Kingdom             17,802         24,471        18,294
 3  Ireland             11,448         26,667        23,500
 4  Japan                8,989         13,723        16,652
 5  Netherlands          6,521         10,157         8,972
 6  Germany              8,230         10,628         6,880
 7  Switzerland          4,074          7,395        10,079
 8  Bermuda              3,654          6,064        10,149
 9  Mexico               6,441          8,686         6,928
 10 France               4,511          6,279         8,633
 12 Australia            3,208          4,219         7,682
 13 Norway               1,989          3,325         7,556
 14 Belgium              3,238          5,088         5,867
 15 Italy                3,779          5,630         4,212
 16 Other Africa         1,153          2,596         6,615
 17 Hong Kong            3,511          4,613         3,974
 18 Indonesia            2,955          3,657         4,186
 19 China                1,032          2,251         5,109
 20 Nigeria              1,723          3,409         3,801
 21 Spain                3,163          5,255         2,359
 22 Malaysia             1,671          2,290         3,117
 23 Cayman
    Islands              1,784          3,113         2,808
 24 Other
    Europe                 339            888         3,922
 25 Brazil                 933            875         3,211
 26 Sweden               1,492          2,948         2,629
 27 Other
    Middle East          1,191          2,627         2,825
 28 Taiwan               1,293          2,289         2,664
 29 Thailand               820          1,297         3,063
 30 South Korea          1,183          2,540         2,559
    All Other          128,931        203,595       224,268

                               [table continued]

                             Foreign Taxes Computed
                              Using 1999 Tax Rates

                      Using          Using         Using
                      Actual         Projected     Actual
                      1999           2004          2004
    Jurisdiction      Profits        Profits       Profits

    All               $45,068        $67,166       $81,865
    All
    except
    mining             40,123         60,341        62,102
 1  Canada              6,370          9,814        10,420
 2  United
    Kingdom             6,380          8,770         6,556
 3  Ireland             1,103          2,569         2,264
 4  Japan               4,078          6,226         7,554
 5  Netherlands         1,854          2,888         2,551
 6  Germany             3,190          4,119         2,667
 7  Switzerland           717          1,301         1,774
 8  Bermuda               223            370           619
 9  Mexico              2,159          2,912         2,322
 10 France              1,970          2,742         3,770
 12 Australia             990          1,302         2,371
 13 Norway              1,109          1,854         4,213
 14 Belgium               974          1,530         1,765
 15 Italy               1,790          2,667         1,995
 16 Other Africa          739          1,664         4,240
 17 Hong Kong             441            579           499
 18 Indonesia           1,069          1,323         1,514
 19 China                 244            532         1,208
 20 Nigeria             1,095          2,166         2,416
 21 Spain                 889          1,477           663
 22 Malaysia              221            303           412
 23 Cayman
    Islands               162            283           255
 24 Other
    Europe                166            435         1,921
 25 Brazil                554            519         1,907
 26 Sweden                429            848           756
 27 Other
    Middle East           699          1,542         1,658
 28 Taiwan                297            526           612
 29 Thailand              236            373           882
 30 South Korea           367            788           794
    All Other          40,684         62,358        71,030

                               [table continued]

                             Foreign Taxes Computed
                              Using 2004 Tax Rates

                      Using          Using         Using
                      Actual         Projected     Actual
                      1999           2004          2004
    Jurisdiction      Profits        Profits       Profits

    All               $40,776        $60,769       $74,068
    All
    except
    mining             37,851         55,915        58,247
 1  Canada              5,274          8,125         8,627
 2  United
    Kingdom             8,156         11,211         8,381
 3  Ireland               935          2,179         1,920
 4  Japan               3,287          5,018         6,089
 5  Netherlands         2,087          3,251         2,872
 6  Germany             3,577          4,619         2,990
 7  Switzerland           462            838         1,142
 8  Bermuda               176            292           489
 9  Mexico              2,100          2,832         2,259
 10 France              1,382          1,924         2,645
 12 Australia             620            816         1,485
 13 Norway              1,386          2,316         5,264
 14 Belgium               486            763           880
 15 Italy               2,045          3,046         2,279
 16 Other Africa          474          1,067         2,720
 17 Hong Kong             597            785           676
 18 Indonesia           1,317          1,630         1,866
 19 China                 176            384           871
 20 Nigeria             1,394          2,758         3,075
 21 Spain               1,354          2,250         1,010
 22 Malaysia              359            492           669
 23 Cayman
    Islands                64            112           101
 24 Other
    Europe                 81            213           941
 25 Brazil                388            364         1,336
 26 Sweden                 86            170           152
 27 Other
    Middle East           639          1,410         1,516
 28 Taiwan                362            640           745
 29 Thailand              203            322           760
 30 South Korea           305            655           660
    All Other          39,865         60,363        64,684

 Source: Underlying data from the U.S. Department of Commerce, Bureau of
 Economic Analysis, as presented in Table 1, panels A and B. Projected 2004
 profits are estimated for each jurisdiction by multiplying actual 1999 profits
 by the average growth factors shown in the fifth numerical column of Table 2.
 See notes for details.
The best starting point on the Web for working with these data are the files listed under "Comprehensive financial and operating data" at http://www.bea.gov/scb/account_articles/international/iidguide.htm#USDIA1.

The Commerce Department's Bureau of Economic Analysis (BEA) conducts comprehensive benchmark surveys of U.S. multinational corporations every five years. The years 1999 and 2004 were chosen for this study because the data available for these two years were the most comprehensive of recent years. Table A1 lists the source tables for the data shown in Table 1.

                  Table A1. Data Sources

 Entries in this table show the table numbers from the BEA
 survey from which the relevant data were taken.

                       1999 Survey         2004 Survey

 Assets                     3B1                 3B1
 Property, plant,
 equipment                  3A1                 3A1
 Sales                      3A1                 3A1
 Compensation               3A1                 3A1
 Foreign income
 tax                        3E1                 3E1
 Before-tax profits         3E1                 3E1

In each BEA survey, data are presented in five different groups. Group II is "Nonbank affiliates of nonbank U.S parents" and their parents. Group III is "Majority-owned nonbank affiliates of nonbank U.S. parents" and their parents. Last week's study drew most of its data from Group II. Because of more extensive data availability, this week's study uses Group II data only. As far as we can tell, the different data sets do not significantly change the results. For example, last week we estimated that the foreign effective tax rate declined from 31.8 percent to 28.6 percent compared with this week's estimated decline from 31.7 percent to 28.7 percent.

Before-tax income is equal to net income minus income from equity investments plus income taxes.

Asset totals are adjusted to exclude equity investments in affiliates.

The effective tax rate is the ratio of foreign income tax to before-tax profits.

Projected 2004 foreign profit is actual 1999 profit multiplied by a ratio. The ratio is the average of four other ratios: (a) 2004 foreign assets divided by 1999 foreign assets, (b) 2004 foreign tangible capital divided by 1999 foreign tangible capital, (c) 2004 foreign sales divided by 1999 foreign sales, and (d) 2004 foreign compensation divided by 1999 foreign compensation.

In tables 3A and 3B, effective tax rates for all countries — 31.7 percent and 28.7 percent — are calculated by dividing the sum of foreign taxes for all countries by the sum of before-tax profits for all countries. The effective tax rates for "All other" countries in the last row — 32.9 percent and 27.5 percent — were calculated by dividing the sum of foreign taxes of 34 jurisdictions (not shown in the table) by the sum of before-tax profits of the same jurisdictions.

In Table 4 the calculations shown for "All" and "All other" do not feed into the calculations shown in Table 5. The calculations for projected 2004 profits in Table 5 are all done separately for 64 jurisdictions.

In Table 5 the values for the aggregate values shown for "All," "All except mining," and "Other" are computed by adding the sums of the values computed for the individual jurisdictions in their category.

"Other Europe" includes Albania, Andorra, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Estonia, Georgia, Gibraltar, Iceland, Kazakhstan, Latvia, Liechtenstein, Lithuania, Macedonia, Malta, Moldova, Montenegro, Romania, Serbia, Slovakia, Slovenia, Turkmenistan, Ukraine, and Uzbekistan.

"Other Africa" is all of Africa excluding Egypt, Nigeria, and South Africa.

"Other Middle East" includes Bahrain, Iran, Iraq, Jordan, Kuwait, Lebanon, Oman, Qatar, Syria, and Yemen.