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Business and Economics > Corporate Taxation

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Cover IMF Staff Country Reports
Chile: Technical Assistance Report—Assessment of Tax Expenditures and Corrective Taxes
International Monetary Fund. Fiscal Affairs Dept.
In response to a request from Mr. Ignacio Briones Rojas, Minister of Finance of Chile, a remote mission was conducted by a joint team of staff from the International Monetary Fund (IMF) and the secretariat of the Organisation for Economic Co-operation and Development (OECD) during April – October 2020. The mission’s main purpose was to assist the Minister of Finance with technical support to review Chile’s tax expenditure methodology and its corrective excise taxes. The present report reflects the findings of the mission. This report was written jointly by the IMF and the OECD, with the IMF team leading the work assessing tax expenditures in the corporate income tax (CIT) and the analysis of excises, and the OECD team leading the work assessing tax expenditures in the personal income tax (PIT) and value added tax (VAT). A presentation of the main findings was given to the Minister of Finance on October 6, 2020. The report incorporates comments provided by the Ministry and the Chilean Revenue Administration.
Keywords:
ISCR; CR; excise tax; capital gain; taxable income; carbon tax; tax treatment; Te report; withholding tax; value-added tax; tax revenue; inheritance tax; Income; Personal income; Corporate income tax; Personal income tax; Value-added tax; Global; Europe
Cover IMF Working Papers
Global Firms, National Corporate Taxes: An Evolution of Incompatibility
Mr. Shafik Hebous
How did the rise of multinational enterprises (MNEs) put pressure on the prevailing international corporate tax framework? MNEs, and firms with market power, are not new phenomena, nor is the corporate income tax, which dates to the early 20th century. This prompts the question, what is distinctly new (about multinational enterprises)—if anything—that has triggered unprecedented recent concerns about vulnerabilities in international tax arrangements and the taxation of MNEs? This paper presents a set of empirical observations and a synthesis of strands of the literature to answer this question. A key message is that MNEs of the 21st century operate differently from prior periods and have evolved to become global firms—with important tax ramifications. 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.
Keywords:
WP; company; multinational enterprise; conduit company; holding company; business organization; Multinational enterprises; global firm; tax avoidance; international tax; management company; credit card company; financing company; Corporate income tax; Foreign direct investment; Double taxation; Trade in services; Personal income; Global
Cover IMF Staff Country Reports
Belize: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper provides an overview of Belize’s tourism sector and main achievements and discusses the country’s comparative advantages and bottlenecks in tourism. It also analyzes the impact of structural and institutional reforms on tourist arrivals. The outturns in tourism have significantly exceeded targets set in the authorities’ National Sustainable Tourism Masterplan (NSTMP). The implementation of the NSTMP reforms has supported the tourism sector’s expansion. In order to guide the development of the tourism sector, the NSTMP 2011 proposes reforms and targets to propel Belize into an internationally recognized tourist destination by 2030. The emergence of the shared economy business model has also brought new challenges, in addition to opportunities. The benefits of the peer-to-peer accommodation available to customers on digital platforms include the expansion of tourism product, service, and sector offerings; improved access to market; and opportunities for income generation. It is imperative that reforms in the near term should focus on addressing the impact of recurring natural hazards, infrastructure bottlenecks, fortifying the institutional and governance framework, reducing crime, and mitigating concerns relating to the shared economy.
Keywords:
ISCR; CR; Belize; firm; tourism sector; loss-making firm; cruise tourism expenditure; EPZ company; company need; tourism indicators performance; Corporate income tax; Tourism; Income and capital gains taxes; Income tax systems; Consumption taxes; Caribbean; Global; Central America
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 Staff Country Reports
Germany: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper explores wealth inequality and private savings in Germany. Trends in increasing corporate profits and gross savings have widened top income inequality, as corporations are typically owned by households in the top of the wealth distribution. The impact on income inequality is more pronounced in countries where the rise in profitability was a result of lower wage growth and labor income shares to start with, as was the case in Germany. The evidence strongly suggests this is not the case and underscores the important role of German business wealth concentration in this context. As high corporate savings and underlying profits largely reflect capital income accruing to wealthy households and increasingly retained in closely-held firms, the build-up of external imbalance has been accompanied by widening top income inequality, rising private savings and compressed consumption rates. The concentration of privately held and publicly listed firm ownership in the hands of industrial dynasties and institutional investors is especially prevalent in Germany, possibly reflecting distortions in firm entry, financing conditions and tax incentives.
Keywords:
ISCR; CR; net; wealth inequality; accelerated depreciation; inequality loop; social security contribution rate; saving rate; labor tax wedge; Income inequality; Income; Corporate income tax; Income distribution; Private savings; Global; Europe; Eastern Europe
Cover IMF Staff Country Reports
Republic of Armenia: Technical Assistance Report-Growth-Friendly Rebalancing of Taxes
International Monetary Fund. Fiscal Affairs Dept.
With the appointment of a new government, a lively debate has ensued about redirecting fiscal policies in support of a balanced revenue-raising strategy that is conducive to investment and growth. Currently, Armenia needs to raise more revenues in support of fiscal consolidation and to generate additional funding for developing and maintaining the physical infrastructure with special reference to the need of improving the urban built-up environment. Since the Authorities requested the mission to consider tax measures that are supportive of growth and/or tradeable sector, the proposed restructuring of taxes recognizes that real estate taxes, resource rent taxes, and broad-based consumption taxes (VAT and excises) are least distortive for growth. The 2016 Technical Assistance Mission in its report reviewed already unutilized tax bases as far as excises are concerned (taxation of gambling, mobile air time, waste packaging taxes, alcohol and tobacco taxation). As requested by the authorities, this mission focused on improving personal and business income taxes, presumptive taxation, and the recurrent real estate tax as base-broadening of the latter could support the fiscal program of the new government.
Keywords:
ISCR; CR; land tax; tax rate; flat tax; market value; tax revenue; tax system; Property tax; Corporate income tax; Personal income; Income tax systems; Africa; Global; Eastern Europe
Cover IMF Staff Country Reports
People’s Republic of China-Hong Kong Special Administrative Region: Selected Issues
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper discusses income inequality in Hong Kong Special Administrative Region (SAR). Income inequality in Hong Kong SAR remains high, despite declining recently. Redistributive policies implemented by the authorities have helped to lower income inequality. However, inequality is likely to rise in the medium-term due to aging and thus more needs to be done. A package of policies could lower the Gini index by 3–4 points by 2050 including: more progressive salaries tax; higher reliance on recurrent property taxes; and increased public expenditure on social welfare, health, housing, education and childcare. According to recent evidence in the literature, these policies could also boost growth by 0.2–0.5 percentage points per year. Public spending on social welfare could continue to be raised to boost redistribution and increase access of poorer households. Spending on education and childcare should be raised to help lower the market income inequality directly. The commissioned study aiming to determine the demand and supply for childcare services and map out the long-term service development programs, as well as the initiatives mentioned in the 2018 Policy Address, should help in this regard.
Keywords:
ISCR; CR; financial condition; Hong Kong SAR; Gini coefficient; revenue loss; CIT rate; estimate revenue spillover; financial conditions; Income inequality; Corporate income tax; Income distribution; Personal income; Global; Asia and Pacific
Cover Technical Notes and Manuals
Estimating the Corporate Income Tax Gap: The RA-GAP Methodology
Mr. Junji Ueda
The IMF Fiscal Affairs Department's Revenue Administration Gap Analysis Program (RA-GAP) aims to provide a quantitative analysis of the tax gap between potential revenues and actual collections, and this technical note explains the concept of the tax gap for corporate income tax (CIT), and the methodology to estimate CIT gaps. It includes detailed steps to derive the potential CIT base and liability with careful consideration for the theoretical differences between the coverage of statistical macroeconomic data and the actual tax base of CIT, and then compare the estimated results with actual declarations and revenues. Although the estimated gaps following the approach will have margins of errors, it has the advantage of using available data without additional costs of collection and suits initial evaluations of overall CIT noncompliance in a country.
Keywords:
TNM; CIT gap; CIT efficiency ratio; CIT base; CIT liability; CIT legislation; Tax Gap; Tax Evasion; Tax Compliance; Corporate Income Tax; CIT Policy gap; CIT payment; CIT credit; CIT noncompliance; taxable income; CIT collection gap; Personal income; Business enterprises; Fiscal accounting and reporting
Cover IMF Working Papers
The Tax Cuts and Jobs Act: An Appraisal
Mr. Nigel A Chalk
,
Mr. Michael Keen
, and
Ms. Victoria J Perry
This paper assesses the landmark Tax Cuts and Jobs Act (TCJA), from the perspective of both the U.S. itself and the wider world. The reform has many positive aspects including steps to broaden the base of, and reduce marginal rates under, the personal income tax (PIT), reduce distortions to investment and financing decisions, and mitigate outward profit shifting. But the TCJA has a large fiscal price tag and leaves significant uncertainty as to how the U.S. tax system will develop. The PIT changes could have better targeted relief at low earners, and there is scope to more fully address distortions in business taxation. The novel international provisions create a complex array of both positive and negative international spillovers, and have the potential to significantly reshape the wider international tax system.
Keywords:
WP; income tax; tax revenue; tax system; tax liability; taxable income; Tax Policy; Business Tax; Personal Income Tax; International Taxation; Pass-throughs; standard deduction; GILTI income; net effect; rate of return; cash flow; multinational company; business income; U.S corporation; GILTI provision; intangible income; Personal income; Corporate income tax; Income tax systems; Income and capital gains taxes; Global
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