{
  "title": "Exploring Residual Profit Allocation",
  "publication": "IMF Working Papers, February 28, 2020",
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  "summary": "Schemes of residual profit allocation (RPA) tax multinationals by allocating their ‘routine’ profits to countries in which their activities take place and sharing their remaining ‘residual’ profit across countries on some formulaic basis.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: Sebastian Beer, Ruud A. de Mooij, Shafik Hebous, Michael Keen, Li Liu\n- Publication date: February 28, 2020\n- Paper type: IMF Working Paper No. 2020/049\n- Core concept: Schemes of residual profit allocation (RPA) allocate multinationals’ ‘routine’ profits to countries where activities occur and share remaining ‘residual’ profit across countries on a formulaic basis.\n- Research approach: Conceptual and empirical exploration of impacts on revenue, investment, and efficiency."
    },
    {
      "heading": "Key findings",
      "content": "- Residual profits are substantial, but concentrated in a relatively few MNEs headquartered in few countries.\n- Reallocating excess profits under RPA:\n  - Adverse for investment hubs.\n  - Appears beneficial for lower income countries even when the formula allocates by destination-based sales.\n- Impact on investment incentives is ambiguous and specific both to countries and MNE groups.\n- Aggregate efficiency is likely to increase only if the rate of tax on routine profits is low."
    },
    {
      "heading": "Impact on tax revenue",
      "content": "- RPA reallocates excess profits; distributional effects include:\n  - Revenue losses in investment-hub countries.\n  - Revenue gains for lower income countries, including under destination-based sales allocation."
    },
    {
      "heading": "Impact on investment and efficiency",
      "content": "- Investment incentives:\n  - Ambiguous overall; effects depend on country characteristics and MNE group.\n  - Not uniformly positive or negative across jurisdictions.\n- Efficiency:\n  - Aggregate efficiency seems likely to increase only if the tax rate on routine profits is low."
    },
    {
      "heading": "Subject coverage and keywords",
      "content": "- Subjects: Average effective tax rate; Corporate income tax; Financial institutions; Income; Marginal effective tax rate; National accounts; Revenue administration; Stocks; Tax policy; Taxes\n- Keywords: capital stock; closed economy; Corporate income tax; cost function; earnings before interest and taxes; Global; Income; International Corporate Taxation; Marginal effective tax rate; Multinational Firms; profit shifting; purged profits; Residual Profit Allocation; residual profits; routine profits; RPA scheme; Stocks; WP\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2020/02/28/exploring-residual-profit-allocation-48998"
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    "Authors: Sebastian Beer, Ruud A. de Mooij, Shafik Hebous, Michael Keen, Li Liu",
    "Published: February 28, 2020",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513528328.001",
    "Authors: Sebastian Beer, Ruud A. de Mooij, Shafik Hebous, Michael Keen, Li Liu",
    "Publication date: February 28, 2020",
    "Paper type: IMF Working Paper No. 2020/049",
    "Core concept: Schemes of residual profit allocation (RPA) allocate multinationals’ ‘routine’ profits to countries where activities occur and share remaining ‘residual’ profit across countries on a formulaic basis.",
    "Research approach: Conceptual and empirical exploration of impacts on revenue, investment, and efficiency.",
    "Residual profits are substantial, but concentrated in a relatively few MNEs headquartered in few countries.",
    "Reallocating excess profits under RPA:",
    "Impact on investment incentives is ambiguous and specific both to countries and MNE groups.",
    "Aggregate efficiency is likely to increase only if the rate of tax on routine profits is low.",
    "RPA reallocates excess profits; distributional effects include:",
    "Investment incentives:",
    "Efficiency:",
    "Subjects: Average effective tax rate; Corporate income tax; Financial institutions; Income; Marginal effective tax rate; National accounts; Revenue administration; Stocks; Tax policy; Taxes",
    "Keywords: capital stock; closed economy; Corporate income tax; cost function; earnings before interest and taxes; Global; Income; International Corporate Taxation; Marginal effective tax rate; Multinational Firms; profit shifting; purged profits; Residual Profit Allocation; residual profits; routine profits; RPA scheme; Stocks; WP",
    "**Working Paper**"
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