scholarly journals DOES THE RECENTLY IMPLEMENTED REGULATION ON COUNTRY-BY-COUNTRY REPORTING DETER TAX AVOIDANCE?

2020 ◽  
Vol 17 (1) ◽  
Author(s):  
Nala Kurniawan ◽  
◽  
Anggari Saputra ◽  
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Empirical Literature ◽  
Tax Rates ◽  
Profit Shifting ◽  
Percentage Point Increase ◽  
Point Increase ◽  
Private Disclosure ◽  
Tax Payments

To adhere with Base Erosion and Profit Shifting (BEPS) Action 13, Indonesia enacted regulations concerning Transfer Pricing Documentation and Country-by-Country Reporting (CbCR) to address the issue of tax avoidance. Those regulations introduced the requirement of CbCR in Indonesia, where Multinational Enterprises (MNEs) operating in Indonesia are required to provide tax authorities with geographic breakdown of their profitability, tax payments, and activities wherever they operate. Using the newly implemented CbCR in Indonesia as a treatment for private disclosure requirement, this study examines the effect of CbCR on MNEs tax avoidance. Employing EUR 750 million consolidated revenue threshold for disclosure and utilizing regression discontinuity design as well as difference-in-differences analysis, we document a 4-8 percentage point increase in effective tax rates among affected MNEs, thus reflecting a decrease in tax avoidance in treatment firms. Our findings contribute (i) to the recent empirical literature on how CbCR as a private disclosure affects corporate tax avoidance behavior and (ii) to the policy evaluation whether CbCR regulation has achieved its objective.

scholarly journals Is There Money on the Table? Evidence on the Magnitude of Profit Shifting in the Extractive Industries

2021 ◽  
Vol 21 (9) ◽  
Author(s):  
Sebastian Beer ◽  
Dan Devlin
Keyword(s):  
Developing Economies ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Extractive Industries ◽  
Profit Shifting ◽  
Tax Rate ◽  
Percentage Point Increase ◽  
Pricing Rules ◽  
Point Increase ◽  
Fiscal Regime

Profit shifting remains a key concern in international tax system debate, but discussions are largely based on aggregate estimates, with less attention paid to individual sectors. Drawing on a novel dataset, we quantify tax avoidance risks in the extractive industries, a sector which is revenue critical for many developing economies. We find that a one percentage point increase in the domestic corporate tax rate has historically reduced sectoral profits by slightly over 3 percent; and the response tends to be more pronounced among mining than among hydrocarbon firms. There is only weak evidence transfer pricing rules contain tax minimization efforts of MNEs in our sample, but interest limitation rules (e.g., thin capitalization or earnings based rules) do reduce the observable extent of profit shifting. Our findings highlight the challenge of taxing income in the natural resource sector and suggest how fiscal regime design might be strengthened.

scholarly journals Assessing impact of base erosion and profit shifting on performance of subsidiaries of multinational corporations in Baltic countries

Equilibrium ◽  
2019 ◽  
Vol 14 (2) ◽  
pp. 277-293
Author(s):  
Egidijus Kundelis ◽  
Renata Legenzova
Keyword(s):  
Multinational Corporations ◽  
Empirical Research ◽  
Tax Avoidance ◽  
Empirical Literature ◽  
Company Performance ◽  
Tax Rates ◽  
Profit Shifting ◽  
Baltic Countries ◽  
The Baltic ◽  
The Impact

Research background: The problem of base erosion and profit shifting by multi-national corporations has been debated from different perspectives because of its multiple impact on the key actors in the economy. Studies refer to its positive impact on companies via corporate taxes saved, but its negative impact on governments via reduced tax collection. A number of empirical studies conducted in different countries support the substantial BEPS impact on company performance, but report differences in its magnitude. Other authors claim that, despite a wide range of tax avoidance opportunities available, tax avoidance is limited due to institutional measures imposed (tax audits, penalties for non-compliance) and high implementation costs. A majority of the previous empirical research covered large countries (USA, Germany) or regions (e.g. Europe), but there is a gap in the re-search assessing the BEPS impact on multinational corporations’ subsidiaries’ performance in countries with lower corporate income tax rates such as the Baltic countries. Purpose of the article: To assess the impact of base erosion and profit shifting on multinational corporations’ subsidiaries’ performance in the Baltic countries. Methods: Empirical research is conducted based on the framework employed by Hines and Rice (1994) to measure BEPS impact on company performance. Regression analysis with fixed effects was applied to a sample of 3,422 Latvian, Lithuanian and Estonian subsidiaries of multinational corporations, which are characterized by low corporate tax rates.  The data for the period of 2007–2015 was retrieved from the Amadeus database. Findings & Value added: The research revealed that Baltic countries’ tax differentials between multinational corporations’ parent and subsidiary countries might have a significant impact on the subsidiary’s financial performance. When the tax rate differences between Baltic and the foreign countries decrease by 1%, reported profits in Baltic countries increase by 2.3%, indicating profit-shifting behaviour. This is in line with the empirical literature and practices applied by multinational corporations. It is also in favour of anti-tax avoidance measures introduced by the EC to be adopted by Baltic and other EU countries.

Challenges of Monitoring Tax Compliance by Multinational Firms: Evidence from Chile

2019 ◽  
Vol 109 ◽  
pp. 500-505
Author(s):  
Sebastián Bustos ◽  
Dina Pomeranz ◽  
José Vila-Belda ◽  
Gabriel Zucman
Keyword(s):  
Multinational Firms ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Tax Compliance ◽  
Tax Rates ◽  
Profit Shifting ◽  
Effective Tax Rates ◽  
Arm’S Length Principle ◽  
Debt Shifting

This paper reviews common challenges of taxing multinational firms, using Chile as a case study. We briefly describe key international tax avoidance methods: profit shifting to low-tax jurisdictions through transfer pricing and debt shifting. We discuss the prevalent policy to tax multinationals--the arm's length principle--and alternative proposals using apportionment formulas. Novel data from Chile show that multinationals make up a large share of GDP but report lower profit and effective tax rates than local firms. In 2011, Chile implemented a reform following OECD guidelines to enforce the arm's length principle. We discuss potential effects on tax collection and welfare.

MULTINATIONAL TAX AVOIDANCE AND ANTI-AVOIDANCE ENFORCEMENT: FIRM-LEVEL EVIDENCE FROM DEVELOPING ASEAN COUNTRIES

2020 ◽  
pp. 1-17
Author(s):  
ATHIPHAT MUTHITACHAROEN ◽  
KRISLERT SAMPHANTHARAK
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Manufacturing Firms ◽  
Profit Shifting ◽  
Firm Level ◽  
Level Data ◽  
Firm Level Data ◽  
Avoidance Measures ◽  
Asean Countries

We use firm-level data from ASEAN5 to examine the significance of tax-motivated profit shifting by multinational enterprises and to analyze how anti-avoidance measures mitigate the profit shifting. We show that (1) tax-motivated profit shifting is statistically and economically significant, especially for manufacturing firms, (2) auditing and transfer-pricing scrutiny is more effective in reducing profit shifting than documentation requirement alone and (3) tax-motivated profit shifting is prominent for large firms, while anti-tax avoidance measures result in the absence of profit shifting detected from small manufacturing firms. The findings have important implications for developing countries with weak governance but dependent on MNEs.

scholarly journals Corporate Taxation and the International Challenge

2014 ◽  
Vol 2014 (2) ◽  
pp. 113-131
Author(s):  
Peter Koerver Schmidt
Keyword(s):  
Income Tax ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Debt Financing ◽  
Tax Rates ◽  
Eu Law ◽  
Corporate Tax ◽  
Profit Shifting ◽  
Tax Rate ◽  
Avoidance Measures

Abstract It is argued th**at the higher degree of economic integration across borders and the international trend towards a reduction of corporate income tax rates have had a significant impact on the Danish corporate tax regime in recent years. Accordingly, during the last ten years the Danish statutory corporate tax rate has been lowered further, while several government actions at the same time have been taken in order to combat international tax avoidance and evasion. As a result, new anti-avoidance provisions have been introduced and some of the older anti-avoidance provisions have been tightened in order to prevent base erosion and profit shifting. Thus, to some extent Denmark has already tried to address a number of the key pressure areas mentioned in the recently published OECD BEPS report, such as international mismatches in entity and instrument characterization, the tax treatment of related party debt financing, transfer pricing and the effectiveness of anti-avoidance measures. However, the article concludes that these anti-avoidance provisions often suffer from being quite complex, very broad in scope and open to criticism from an EU law perspective.

scholarly journals Assessing Profit Shifting in Lithuanian Firms

2021 ◽  
Vol 92 ◽  
pp. 02037
Author(s):  
Egidijus Kundelis ◽  
Renata Legenzova ◽  
Julijonas Kartanas
Keyword(s):  
Open Economy ◽  
Fixed Effects ◽  
Multinational Enterprises ◽  
Tax Avoidance ◽  
Value Added ◽  
Tax Rates ◽  
Profit Shifting ◽  
Tax Rate ◽  
Small Economies ◽  
Statutory Tax Rate

Research background: Multinational enterprises (MNEs) employ tax avoidance by ability to use differences in tax systems of various countries to successfully incur effective tax rate that is lower than the statutory one. Literature analysis revealed that previous research rarely concentrated on profit shifting practices in small economies. It mostly covered large countries (USA, Germany) or regions (e.g. Europe). Research on Lithuania, as a small open economy characterized by lower corporate income tax rates, is a relevant case for the analysis. Purpose of the article: The purpose of the article is to assess profit shifting via transfer mispricing in Lithuanian companies. Methods: Regression analysis with fixed effects was applied to a sample of 3,563 Lithuanian companies for the period of 2010–2018. The data was retrieved from Amadeus database. Findings & Value added: The results of testing profit shifting channel – transfer mispricing – showed that tax incentives significantly affect earnings of MNEs in the sample while results of domestic firms are puzzling. Earnings of multinationals in the sample are strongly affected by statutory tax rate difference between the subsidiary operating in Lithuania and the parent company in a foreign country. Such results may imply that in small economies like Lithuania (characterized by lower tax rates and lower tax avoidance costs) profit shifting via transfer mispricing is used by MNEs as a channel of corporate tax avoidance.

scholarly journals Nasjonalrapport for Norge

2014 ◽  
Vol 2014 (2) ◽  
pp. 173-194
Author(s):  
Martin Børresen ◽  
Marius Pilgaard ◽  
Marie Bjørneby
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Tax Rates ◽  
Corporate Tax ◽  
Profit Shifting ◽  
Tax System ◽  
Tax Rate ◽  
Return On Capital ◽  
International Obligations ◽  
Equity Finance

Abstract Since the Tax Reform of 1992 Norway has had a tax system of relatively low tax rates and broad tax bases. Norway, along with other Nordic neighbours, did quite early substantially reduce its statutory corporate tax rate - reduced from 50.8 to 28 per cent as part of the 1992 Reform. After 1992 the rate has been constant at 28 until it was reduced marginally to 27 in 2014. Since 1992 the principal objective in designing the corporate tax system has been to ensure resource effectiveness. The role of the corporate (and capital) income tax is therefore to secure public revenue but at the same time minimising distortion. An important feature of the system is therefore that normal return on capital is taxed at the same rate, irrespective of whether it is earned as business income or not. The Report identifies three main challenges to the current corporate tax system. The first challenge discussed is the system’s effects on investments. It cannot be overlooked that the corporate tax rate in Norway is currently higher than the tax rate of many countries Norway is commonly compared with (e.g. other Nordic countries). The Report suggests that this can contribute to a reduction in the level of investment in Norway. The second identified challenge is the tax distortion between debt and equity finance. The Report briefly discusses neutrality in financing through equal tax treatment of debt and equity finance. The Report then discusses the implications and differences of an ACE and a CBIT model in this context. The final challenge discussed is base erosion and profit shifting (BEPS). Differences in countries’ tax rules create vast opportunities for tax planning, and largely for the benefit of multinational enterprises (MNEs), inter alia through transfer pricing. The Report suggests that BEPS over time may imply a serious threat in maintaining the revenue from the corporate tax base. The Report then acknowledges that a reduction in the formal tax rate may only to some extent address the problem; which indicates a need to consider other supplementing measures. One such measure is the interest deduction limitation rule, made effective from 2014. The rule was introduced to address profit shifting in MNEs. More generally the Report recognises that Norway cannot freely introduce measures against BEPS following international obligations. Finally the Report mentions the appointment of a Tax Commission in 2013. The Commission’s mandate is to review the Norwegian corporate tax system in light of international developments. The Commission shall deliver its report in the autumn of 2014.

Transfer Pricing and Location of Intangibles - Spillover and Tax Avoidance through Profit Shifting

2020 ◽  
Author(s):  
Rebecca Reineke ◽  
Katrin Weiskirchner-Merten
Keyword(s):  
Empirical Evidence ◽  
Transfer Pricing ◽  
Home Bias ◽  
Tax Avoidance ◽  
Optimal Location ◽  
The Other ◽  
Profit Shifting ◽  
Tax Rate ◽  
Length Range ◽  
A Company

This study examines how spillovers affect a multinational company's choice of an intangible's location and the corresponding transfer price for using this intangible. Our model uses a company with a domestic division in a high-tax country and a foreign division in a low-tax country, where each division's activities generate spillovers on the other division's income. In contrast to previous studies, our analysis incorporates an intangible's optimal location when the company trades off tax minimization and efficient activities. By locating the intangible abroad, the company reduces its tax liability, whereas locating the intangible domestically yields more efficient domestic division activities. For a high spillover of the domestic division, the company locates the intangible domestically. Our model supports empirical evidence regarding intangibles' location that is interpreted as "home bias". Additionally, we show how variations in regulatory parameters-arm's length range and tax rate differential-affect the divisions' activities and the intangible's location.

Tax Abuse and Implications for Human Rights in Africa

2019 ◽  
pp. 189-208
Author(s):  
Annet Wanyana Oguttu ◽  
Monica Iyer
Keyword(s):  
Human Rights ◽  
Multinational Enterprises ◽  
Tax Reform ◽  
Tax Avoidance ◽  
International Taxation ◽  
Fair Share ◽  
Profit Shifting ◽  
African Countries ◽  
Tax System ◽  
Development Goals

This chapter analyzes whether the international tax reform measures instituted under the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Project are effective in ensuring African countries get a fair share of taxes from multinational enterprises (MNEs) transacting within their borders, so that they can finance their development goals and promote the human rights of their citizens. The OECD chose to focus on curtailing sophisticated tax-avoidance schemes by strengthening existing anti-avoidance provisions. MNEs have abused these existing laws, however, making them largely ineffective. Given that MNEs are always a step ahead in devising new tax-avoidance strategies, one wonders whether emphasis on strengthening anti-avoidance laws will achieve much. The OECD seems to have missed an opportunity to evaluate the whole tax system and deal with the very root of the problems inherent in international taxation.

scholarly journals Are Less Developed Countries More Exposed to Multinational Tax Avoidance? Method and Evidence from Micro-Data

2019 ◽  
Vol 34 (3) ◽  
pp. 790-809 ◽  
Author(s):  
Niels Johannesen ◽  
Thomas Tørsløv ◽  
Ludvig Wier
Keyword(s):  
Developing Countries ◽  
Multinational Firms ◽  
Tax Avoidance ◽  
Institutional Development ◽  
Developed Countries ◽  
Less Developed Countries ◽  
Tax Rates ◽  
Profit Shifting ◽  
Novel Approach ◽  
Data Requirements

Abstract This paper uses a global dataset with information about 210,000 corporations in 142 countries to investigate whether tax avoidance by multinational firms is more prevalent in less-developed countries. The paper proposes a novel approach to studying cross-border profit shifting, which has relatively low data requirements and is therefore particularly well-suited for the context of developing countries. The results consistently show that the sensitivity of reported profits to profit-shifting incentives is negatively related to the level of economic and institutional development. This may explain why many developing countries opt for low corporate tax rates in spite of urgent revenue needs and severe constraints on the use of other tax bases.

Sign in / Sign up

Export Citation Format

Share Document