## Global Firms, National Corporate Taxes: An Evolution of Incompatibility

_IMF Working Papers, September 4, 2020_

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## Bibliographic details
- Authors: Shafik Hebous
- Published: September 4, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513556376.001

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### Summary
- Research question: How did the rise of multinational enterprises (MNEs) put pressure on the prevailing international corporate tax framework?
- Core finding: MNEs of the 21st century operate differently from prior periods and have evolved to become global firms—with important tax ramifications.
- Central thesis: The fragility of international tax arrangements was present at the outset of designing international tax rules, but the challenges have drastically intensified with:
  - the global integration of business,
  - the increased trade in hard-to-price services and intangibles,
  - and the rapid growth of the digital economy.

### Empirical observations and synthesis
- The paper presents a set of empirical observations and a synthesis of strands of the literature to explain why recent concerns about vulnerabilities in international tax arrangements and the taxation of MNEs have become unprecedented.
- Historical context: MNEs, firms with market power, and the corporate income tax (dating to the early 20th century) are not new; what is new is the operational evolution of MNEs into global firms that exploit features of modern economic integration and digitalization.
- Key drivers of intensified tax challenges:
  - deeper cross-border business integration,
  - greater prevalence of transactions involving hard-to-price services and intangibles,
  - expansion of the digital economy enabling activities that are difficult to locate or tax under traditional nexus and profit-allocation rules.

### Implications for international corporate tax arrangements
- The evolution of MNEs into global firms increases vulnerabilities in national corporate tax systems and the compatibility of those systems with cross-border business models.
- Traditional international tax rules, designed when business was less globally integrated and intangible-intensive, are increasingly strained by:
  - difficulty in pricing and allocating profits from intangibles and services,
  - challenges in establishing taxable presence (nexus) for digital activities,
  - the potential for tax avoidance amplified by complex corporate structures and cross-border flows.

### Key publication facts
- By Shafik Hebous
- September 4, 2020
- Pages: 27
- Series: Working Paper No. 2020/178
- Volume: 2020
- Issue: 178
- DOI: https://doi.org/10.5089/9781513556376.001
- Stock No: WPIEA2020178
- ISBN: 9781513556376
- ISSN: 1018-5941

*Source: Global Firms, National Corporate Taxes: An Evolution of Incompatibility, Shafik Hebous, IMF Working Paper (September 4, 2020).*

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_Source: https://www.imf.org/en/publications/wp/issues/2020/09/04/global-firms-national-corporate-taxes-an-evolution-of-incompatibility-49721_