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Business and Economics > Corporate Taxation

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Cover Technical Notes and Manuals
Corporate Income Tax Gap Estimation by using Bottom-Up Techniques in Selected Countries: Revenue Administration Gap Analysis Program
Patricio A Barra
,
Mr. Eric Hutton
, and
Polina Prokof'yeva
This technical note describes bottom-up CIT gap estimation techniques applied by revenue administrations in the following highly experienced countries in this approach: Australia, Brazil, Canada, Denmark, Sweden, the United Kingdom, and the United States. The main topics included in the descriptions are techniques applied, CIT gap results, advantages and disadvantages of different available options, and future developments and recommendations for any revenue administration interested in starting bottom-up CIT gap estimation programs having no prior experience.
Keywords:
Tax Administration; Tax Compliance; Corporate Income Tax; Tax Gap; Tax Evasion; Random Audit Program; Risk-Based Audits; bottom-up technique; CIT gap; gap definition; Ra-GAP team; members of the Revenue Administration Gap Analysis Program; Auditing; Revenue Administration Gap Analysis Program (RA-GAP); Small and medium enterprises
Cover IMF How To Notes
How to Combat Value-Added Tax Refund Fraud
Cedric Andrew
and
Ms. Katherine Baer
A previous IMF Working Paper on value-added tax (VAT) refunds (WP/07/31, by Keen and Smith) describes the main forms of VAT noncompliance and concludes that VAT is susceptible to evasion and fraud like any other tax. This paper shows the insidious nature and extent of VAT refund fraud in selected EU countries and argues that this type of noncompliance requires tax administrations to adopt a coordinated strategy and deploy a range of countermeasures to combat this threat. Because such fraud is primarily a criminal legal issue, tackling it successfully will require cooperation, both internationally between VAT administrations and nationally between tax authorities and the judiciary. The paper’s focus is primarily on advanced economies in the context of the EU, but many of the recommendations are applicable to emerging market and developing countries. A separate IMF How to Note discusses managing VAT refunds in developing countries.
Keywords:
value-added tax; refund; fraud; strategies; cooperation; refund fraud; acquisition fraud scheme; return fraud; MTIC VAT Contra carousel scheme; Customs and Excise tax office case study; Tax refunds; Tax administration core functions; Middle East
Cover Policy Papers
International Corporate Tax Reform
International Monetary Fund. Fiscal Affairs Dept.
and
International Monetary Fund. Legal Dept.
To relieve the pressure on the outdated international corporate tax system, an ambitious reform was agreed at the Inclusive Framework (IF) on Base Erosion and Profit Shifting in 2021, with now 138 jurisdictions joining. It complements previous efforts to mitigate profit shifting by addressing the challenges of the digitalization of the economy through a new allocation of taxing rights to market economies (Pillar 1) and tax competition through a global minimum corporate tax (Pillar 2). This paper concludes that the agreement makes the international tax system more robust to tax spillovers, better equipped to address digitalization, and modestly raises global tax revenues.
Keywords:
Tax Policy; allocation rule; IMF capacity development; tax competition; G. revenue mobilization agenda; A. reform direction; International tax issues; Corporate income tax; Double taxation; Tax incentives; Global
Cover IMF Working Papers
Excess Profit Taxes: Historical Perspective and Contemporary Relevance
Mr. Shafik Hebous
,
Dinar Prihardini
, and
Nate Vernon
This paper discusses the design of excess profits taxes (EPTs) that gained renewed interest following the COVID-19 outbreak and the recent surge in energy prices. EPTs can be designed as an efficient tax only falling on economic rent, like an allowance for corporate capital, and drawing some parallels with current proposals for reforming multinationals’ taxation. EPTs can be permanent or temporary as an add-on to the corporate income tax to support revenue during an adverse shock episode. The latter reflects experiences with EPTs during and after the World Wars. Different from that era, though, profit shifting is now a challenge. Estimation using firm-level data suggest that, at present, locations of excess profit across countries are consistent with profit shifting practices by multinationals. Destination-based EPTs can address this concern. Estimates suggest that a 10 percent EPT on the globally consolidated accounts of multinationals (on top of the current corporate income tax), with the EPT base being allocated using sales, raises global revenue by 16 percent of corporate income tax revenues. The analysis suggests that international coordination would be desirable to mitigate the risks of profit shifting and tax competition. Eventually, EPTs could mark an evolution of corporate taxation toward a non-distortionary rent tax.
Keywords:
profit shifting; profits tax; com petition; profit tax; excess profits; Corporate income tax; Allowance for corporate equity; Non-wage benefits; Corporate taxes; Global
Cover IMF Working Papers
Home or Away? Profit Shifting with Territorial Taxation
Dominika Langenmayr
and
Ms. Li Liu
In 2009, the United Kingdom abolished the taxation of profits earned abroad and introduced a territorial tax system. Under the territorial system, firms have strong incentives to shift profits abroad. Using a difference-in-differences research design, we show that the profitability of UK subsidiaries in low-tax countries increased after the reform compared to subsidiaries of non-UK multinationals in the same countries by an average of 2 percentage points. This increase in profit shifting also leads to increases in measured productivity of the foreign affiliates of UK multinationals of between 5 and 9 percent.
Keywords:
profit shifting; territorial tax system; multinational firms; shifted profit; UK multinational; UK subsidiary; difference-in-differences research design; Total factor productivity; Transnational corporations; Corporate income tax; Income; Wages; Global
Cover Departmental Papers
Tax Avoidance in Sub-Saharan Africa’s Mining Sector
Ms. Giorgia Albertin
,
Boriana Yontcheva
,
Dan Devlin
,
Hilary Devine
,
Mr. Marc Gerard
,
Sebastian Beer
,
Irena Jankulov Suljagic
, and
Mr. Vimal V Thakoor
This paper aims to contribute to the international policy debate around profit shifting, tax avoidance and SSA’s revenue mobilization efforts in three ways. First, it examines the importance of mining, the role of multinational enterprises (MNEs), and mining revenue outcomes in SSA. Second, it assesses the magnitude of profit shifting in mining drawing on new macro level research, supplemented by case studies to illustrate the lived experience of tax avoidance in SSA mining. Third, the paper identifies tax policy reforms that could boost revenue mobilization in SSA.
Keywords:
International Taxation, Corporate Income Taxation, Multinational Enterprises, Profit Shifting, Mining, Developing Countries, Africa, Revenue Mobilization, Tax Incentives, Tax Avoidance.; mining revenue outcome; mining MNE profits; SSA economy; natural resource taxation; MNE tax avoidance; revenue loss; SSA resource-intensive country; profit shifting; Mining sector; Corporate income tax; Corporate taxes; Withholding tax; Tax incentives; Africa; Sub-Saharan Africa; Global
Cover Departmental Papers
Taxing Multinationals in Europe
Ernesto Crivelli
,
Ruud A. de Mooij
,
J. E. J. De Vrijer
,
Mr. Shafik Hebous
, and
Mr. Alexander D Klemm
This paper aims to contribute to the European policy debate on corporate income tax reform in three ways. First, it takes a step back to review the performance of the CIT in Europe over the past several decades and the important role played by MNEs in European economies. Second, it analyses corporate tax spillovers in Europe with a focus on the channels and magnitudes of both profit shifting and CIT competition. Third, the paper examines the progress made in European CIT coordination and discusses reforms to strengthen the harmonization of corporate tax policies, in order to effectively reduce both tax competition and profit shifting.
Keywords:
Europe; International taxation; Corporate taxation; Multinational corporations; Corporate profits; Tax competition; MNE profits; revenue effect; EU code of conduct; effects of the CCCTB reform; profit shifting; Corporate income tax; Corporate taxes; Competition; Formula apportionment; Global
Cover Corporate Income Taxes under Pressure
Corporate Income Taxes under Pressure
Why Reform Is Needed and How It Could Be Designed
Ruud A. de Mooij
,
Mr. Alexander D Klemm
, and
Ms. Victoria J Perry

Abstract

The book describes the difficulties of the current international corporate income tax system. It starts by describing its origins and how changes, such as the development of multinational enterprises and digitalization have created fundamental problems, not foreseen at its inception. These include tax competition—as governments try to attract tax bases through low tax rates or incentives, and profit shifting, as companies avoid tax by reporting profits in jurisdictions with lower tax rates. The book then discusses solutions, including both evolutionary changes to the current system and fundamental reform options. It covers both reform efforts already under way, for example under the Inclusive Framework at the OECD, and potential radical reform ideas developed by academics.

Keywords:
Profit shifting; tax competition; tax avoidance; international cooperation; tax reform; multinationals; digitalization; multinational enterprise; tax treaty; passive income; Corporate income tax; Double taxation; Income; Foreign direct investment; Corporate taxes; Global; Sub-Saharan Africa; Europe
Cover IMF Working Papers
International Taxation and Luxembourg’s Economy
Ruud A. de Mooij
,
Dinar Prihardini
, and
Mr. Emil Stavrev
Luxembourg receives ample investment from multinational corporations, in part due to some attractive features in its international tax rules. Around 95 percent of these foreign investments pass through Luxembourg via companies performing holding and/or intra-group financing activities. While their contribution to Luxembourg’s economy is modest relative to their large overall balance sheets, they still generate around 3 percent of GDP in tax revenue, create almost 4500 direct jobs, and spend almost 3 percent of GDP on salaries and purchases of business services. Ongoing changes in the international corporate tax framework pose risks to these economic contributions, which this paper attempts to quantify. It also discusses options for reforms in Luxembourg’s tax system that could help offset adverse revenue and economic effects.
Keywords:
Luxembourg; International Tax; Foreign Direct Investment; Special Purpose Entities.; WP; Luxembourg economy; Luxembourg government; tax system; CbCR datum; climate change commitment; energy efficiency target; Luxembourg driver; Luxembourg headquartered MNEs; Luxembourg MNEs; Special Purpose Entities; property tax; Corporate income tax; Special purpose vehicle; Income; Environmental taxes; Global; Europe
Cover IMF Working Papers
Tec(h)tonic Shifts: Taxing the “Digital Economy”
Aqib Aslam
and
Ms. Alpa Shah
The ever-increasing digitalization of businesses has accelerated the need to address the many shortcomings and unresolved issues within the international corporate income tax system. In particular, the customer or “user”—through their online activities—is now considered by many as being a critical driving force behind the value of digital services. Furthermore, the rapid growth of digital service providers over the last decade has made them an increasingly popular target for special taxes—similar to wealth and solidarity taxes—which can also help mobilize much-needed revenues in the wake of a crisis. This paper argues that a plausible conceptual case can be made to tax the value generated by users under the corporate income tax. However, a number of issues need to be tackled for user-based tax measures to become a reality, which include agreement among countries on whether user value justifies a reallocation of taxing rights, establishing the legal right to tax income derived from user value, as well as an appropriate metric for valuing user-generated data if it is ever to be used as a tax base. Furthermore, attempting to tax only certain types of business is ill-advised, especially as user data is now being exploited widely enough for it to be recognized as an input for almost all businesses. Several options present themselves for consideration—from a modified permanent establishment definition combined with taxation by formulary apportionment, to user-based royalty-type taxes—each with their own merits and misdemeanors.
Keywords:
WP; user data; withholding tax; multinational enterprise; tax treatment; company activity; gross income; resource company; Corporate Taxation; Digitalization; income tax; social media; natural resource; digital economy; small business; Corporate income tax; Data collection; Income and capital gains taxes; Income tax systems; Global; profit margin; customer base; computer database; resident company; market power