Base Erosion, Profit Shifting and Developing Countries

IMF Working Papers, May 29, 2015

Source details

International corporate tax issues are prominent in public debate, notably with the G20-OECD project addressing Base Erosion and Profit Shifting (‘BEPS’).
While considerable empirical evidence exists for advanced countries on the cross-country fiscal externalities at the heart of these issues, there is almost none for developing countries.
This paper focuses on developing countries and applies a new method to distinguish between spillover effects through real decisions and through avoidance — and quantify the revenue impact of the latter.

Data: panel data for 173 countries over 33 years.
Analytical innovation: a new method to separate spillover effects arising from real decisions from those arising from avoidance (profit shifting), and to quantify the revenue impact of avoidance.

Spillover effects on the tax base are if anything a greater concern for developing countries than for advanced countries.
Spillover effects constitute a significant fiscal concern for developing countries.
The paper quantifies the revenue impact attributable to avoidance/profit shifting (details in the full working paper).

International corporate tax spillovers (including BEPS-related avoidance) matter materially for developing-country revenues.
Understanding and addressing both real-decision spillovers and avoidance-driven spillovers is important for tax policy in developing countries.
The findings underline the relevance of international tax cooperation (as reflected in the G20-OECD BEPS project) for developing-country revenue protection.

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