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Business and Economics > Public Finance

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Cover Technical Notes and Manuals
Special Purpose Entities: Guidelines for a Data Template
Mr. Carlos Sanchez-Munoz
,
Artak Harutyunyan
, and
Ms. Padma S Hurree Gobin
The Note is meant to assist compilers in the practical application of the agreed defini¬tion to identify resident Special Purpose Entities (SPE) in their jurisdictions and in collecting and reporting SPE-related cross-border data. To this end, these guidelines provide practical advice on the (1) implementa¬tion of the definition of SPEs, (2) possible data sources and processes for collecting and compiling SPE-related statistics, and (3) reporting within the agreed Data Template.
Keywords:
Globalization; multinationals; host jurisdictions; institutional units; control; cross-border flows and positions; SPE definition; SPE data collection; company B; SPE flow; SPE statistics; Special purpose vehicle; Data collection; External sector statistics; Foreign direct investment; International investment position; Global
Cover IMF Working Papers
Promoting Innovation: The Differential Impact of R&D Subsidies
Reda Cherif
,
Fuad Hasanov
,
Christoph Grimpe
, and
Wolfgang Sofka
We investigate the effect of R&D subsidies on firms’ innovation by ownership, industry, and firm size using German firm-level data. The impact of R&D subsidies is heterogeneous across industries for multinational corporations (MNCs) and domestic firms while it does not differ substantially by firm size. Domestic firms have a larger response in R&D spending in low-tech manufacturing, knowledge-intensive services, and technological services while the response of domestic and foreign MNCs is broadly similar and is greater in medium-tech and high-tech manufacturing. Foreign MNC subsidiaries’ response in terms of patents is greater than that of domestic MNCs in most industries.
Keywords:
Innovation; patents; research and development; R&D; subsidies; multinationals; investment; technology policy; R&D subsidy; high-tech manufacturing; subsidiaries' response; low-tech manufacturing; R&D spending; Transnational corporations; Manufacturing; Services sector; Government subsidies; Investment policy; Global
Cover IMF Working Papers
Pareto-Improving Minimum Corporate Taxation
Mr. Shafik Hebous
and
Mr. Michael Keen
The recent international agreement on a minimum effective corporate tax rate marks a profound change in global tax arrangements. The appropriate level of that minimum, however, has been, and remains, extremely contentious. This paper explores the strategic responses to a minimum tax, which—the policy objective being to change the rules of tax competition game--—are critical for assessing the design and welfare impact of, and prospects for, this fundamental policy innovation. Analysis and calibration plausibly suggest sizable scope for minima that are Pareto-improving, benefiting low as well as high tax countries, over the uncoordinated equilibrium.
Keywords:
Tax Competition; Minimum Taxation; Corporate Tax Reform; International Taxation; competition game; policy objective; corporate tax reform; best response; country benefit; residence country; Corporate income tax; Competition; Tax avoidance; Global
Cover IMF Working Papers
An Assessment of Global Formula Apportionment
Ruud A. de Mooij
,
Ms. Li Liu
, and
Dinar Prihardini
Formula apportionment as a way to attribute taxable profits of multinationals across jurisdictions is receiving increased attention. This paper reviews existing literature and discusses experiences in selective federal states to evaluate the economic properties of formula apportionment relative to the current international tax regime that is based on separate accounting. It highlights major advantages, such as the elimination of profit shifting within multinational groups; and it discusses new distortions and the impact on tax competition. The analysis exploits different datasets to assess the direct revenue implications for individual countries under alternative formulas. The distributional effects across countries are found to be large, reflecting major discrepancies between where profits are currently attributed and where factors of production are located or sales take place. The largest losses appear in investment hubs (i.e. countries with a disproportionate ratio of foreign direct investment to GDP), while several large advanced countries are likely to gain. Developing countries gain most likely if employment receives a large weight in the formula; they also tend to benefit, on average, from a formula based on sales by destination.
Keywords:
WP; parent company; taxable income; company group; company transaction; enterprise tax.; non-loss-making company; International corporate taxation; Multinationals; Formula apportionment; enterprise tax; tax competition; data from ORBIS; tax enforcement; revenue effect; Corporate income tax; Personal income; Employment; Global; Europe
Cover IMF Working Papers
The Cost and Benefits of Tax Treaties with Investment Hubs: Findings from Sub-Saharan Africa
Sebastian Beer
and
Jan Loeprick
This paper investigates the costs and benefits of concluding double tax treaties with investment hubs. Based on a sample of 41 African economies from 1985–2015, the results suggest that signing treaties with investment hubs is not associated with additional investments; yet, these treaties tend to come with nonnegligible revenue losses. Building on a theoretical model, the paper investigates the role of treaty shopping in driving nominal investment flows and provides indirect evidence for its importance in the sample
Keywords:
WP; tax revenue; income tax; Tax Treaty Policy; Double Tax Treaties; Domestic Resource Mobilization; Mauritius; Sub-Saharan Africa; CIT revenue; cost of capital; withholding tax tax rate; tax cost; revenue loss; Investment hubs; cost parameter; repatriation impact FDI stock; FDI equation; effects of DTTS; revenue efficiency; tax revenue equation; Corporate income tax; Foreign direct investment; Double taxation; Withholding tax; Global; Africa
Cover IMF Working Papers
International Corporate Tax Avoidance: A Review of the Channels, Magnitudes, and Blind Spots
Sebastian Beer
,
Ruud A. de Mooij
, and
Ms. Li Liu
This paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations. It surveys evidence on main channels of corporate tax avoidance including transfer mispricing, international debt shifting, treaty shopping, tax deferral and corporate inversions. Moreover, it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting. We find that the literature suggests that, on average, a 1 percentage-point lower corporate tax rate will expand before-tax income by 1 percent—an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time. The literature on tax avoidance still has several unresolved puzzles and blind spots that require further research.
Keywords:
WP; tax rate; passive income; dependent variable; Corporate taxation; Multinationals; Profit shifting; International tax avoidance; Meta analysis; host-country tax; company debt; residence country; firm FE; consensus estimate; debt shifting; profit reallocation; elasticity estimate; company transaction; single tax; Corporate income tax; Tax avoidance; Corporate taxes; Personal income; Global
Cover IMF Working Papers
Base Erosion, Profit Shifting and Developing Countries
Ernesto Crivelli
,
Ruud A. de Mooij
, and
Mr. Michael Keen
International corporate tax issues are prominent in public debate, notably with the G20-OECD project addressing Base Erosion and Profit Shifting (‘BEPS’). But while there is considerable empirical evidence for advanced countries on the cross-country fiscal externalities at the heart of these issues, there is almost none for developing countries. This paper uses panel data for 173 countries over 33 years to explore their magnitude and nature, focusing particularly on developing countries and applying a new method to distinguish between spillover effects through real decisions and through avoidance —and quantify the revenue impact of the latter. The results suggest that spillover effects on the tax base are if anything a greater concern for developing countries than for advanced—and a significant one.
Keywords:
WP; Corporate income tax; BEPS; tax avoidance; international taxation; spillover effect; tax haven; simple average; CIT base; rate spillover; profit shifting; competition literature; spillover equation; Average effective tax rate; Spillovers; Caribbean; Sub-Saharan Africa
Cover IMF Working Papers
Thin Capitalization Rules and Multinational Firm Capital Structure
Jennifer Blouin
,
Harry Huizinga
,
Mr. Luc Laeven
, and
Gaetan Nicodeme
This paper examines the impact of thin capitalization rules that limit the tax deductibility of interest on the capital structure of the foreign affiliates of US multinationals. We construct a new data set on thin capitalization rules in 54 countries for the period 1982-2004. Using confidential data on the internal and total leverage of foreign affiliates of US multinationals, we find that thin capitalization rules significantly affect multinational firm capital structure. Specifically, restrictions on an affiliate’s debt-to-assets ratio reduce this ratio on average by 1.9%, while restrictions on an affiliate’s borrowing from the parent-to-equity ratio reduce this ratio by 6.3%. Also, restrictions on borrowing from the parent reduce the affiliate’s debt-to-assets ratio by 0.8%, which shows that rules targeting internal leverage have an indirect effect on the overall indebtedness of affiliate firms. The impact of capitalization rules on affiliate leverage is higher if their application is automatic rather than discretionary. Furthermore, thin capitalization regimes have aggregate firm effects: they reduce the firm’s aggregate interest expense but lower firm valuation. Overall, our results show than thin capitalization rules, which thus far have been understudied, have a substantial effect on the capital structure within multinational firms, with implications for the firm’s market valuation.
Keywords:
WP; leverage restriction; interest expense; leverage ratio; interest deductibility; affiliate debt; Thin capitalization rule; Multinational firm; Capital structure; Taxation; rate of inflation; Thin capitalization rules; Domestic debt; Transnational corporations; Stocks; Global
Cover IMF Working Papers
Globalization, Tax Competition and the Future of Tax Systems
Mr. Vito Tanzi
This paper discusses the implications for tax systems of globalization of capital markets and of economies. It shows the extent to which particular taxes are affected by the globalization process. It speculates on future developments in this area and on tax competition.
Keywords:
WP; enterprise; country; tax rate; tax competition; tax-haven country; multinational enterprise; tax authorities; net effect; closed economy; enterprise's branch; intra-firm trade; Income and capital gains taxes; Income tax systems; Competition; Corporate income tax; Global
Cover IMF Working Papers
Working Paper Summaries (WP/95/1 - WP/95/61)
International Monetary Fund
This compilation of summaries of Working Papers released during January-June 1995 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period. Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street, Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201.
Keywords:
WP; country; rate; economy; liberalization; policy; employment voucher; price liberalization; U.K. economy; transition economy; sound fiscal policy response; Exchange rates; Inflation; Currencies; Real exchange rates; Wages; Sub-Saharan Africa; Baltics; Central and Eastern Europe; Southern Africa; West Africa