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Is There Money on the Table? Evidence on the Magnitude of Profit Shifting in the Extractive Industries
Author: Sebastian Beer
Series:
IMF Working Papers
Volume/Issue:
Volume 2021: Issue 009
Language:
English
Publication Date:
15 Jan 2021
DOI:
https://doi.org/10.5089/9781513566801.001
ISBN:
9781513566801
ISSN:
1018-5941
Pages:
30
Keywords:
International Corporate Taxation; Multinational Firms; Mining; Petroleum; Profit Shifting; Debt; Interest Limitations; Transfer Pricing; Production Sharing Agreements; WP; tax rate differential; taxable profits; CIT base; profits increase; representative firm
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Profit shifting remains a key concern in international tax system debate, but discussions are largely based on aggregate estimates, with less attention paid to individual sectors. Drawing on a novel dataset, we quantify tax avoidance risks in the extractive industries, a sector which is revenue critical for many developing economies. We find that a one percentage point increase in the domestic corporate tax rate has historically reduced sectoral profits by slightly over 3 percent; and the response tends to be more pronounced among mining than among hydrocarbon firms. There is only weak evidence transfer pricing rules contain tax minimization efforts of MNEs in our sample, but interest limitation rules (e.g., thin capitalization or earnings based rules) do reduce the observable extent of profit shifting. Our findings highlight the challenge of taxing income in the natural resource sector and suggest how fiscal regime design might be strengthened.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund