The effects of tax rate changes on corporate profitability are not fully understood. Implicit tax theory predicts a positive relation between country-level tax rates and firm-level pretax returns. Conversely, income shifting should make reported pretax returns inversely related to tax rates. Among single-country European firms, we find robust evidence of corporate implicit taxes following tax rate changes, concentrated in firms that rely less on intangible assets and firms in closed economies (non-EU countries). Among multinational firm affiliates, we find the effects of income shifting outweigh the effects of implicit taxes for firms with high intangibles and in countries with open borders. Our results imply income shifting estimated using only reported profits is less biased by implicit taxes in settings with open economies and firms with unique inputs or products. Our evidence also helps explain prior evidence of decreasing corporate implicit tax effects over time, particularly for multinationals.