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International corporate tax issues have now risen to prominence in public debate. But while there is considerable empirical evidence for advanced countries on the cross-country fiscal externalities at their heart, 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 to 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: corporate income tax, BEPS, tax avoidance, international taxation
JEL classification: F 21, F 23, H 25
(ProQuest: ... denotes formulae omitted.)
1.Introduction
International aspects of corporate taxation have recently come to prominence in public debate, prompted largely by increased awareness of the relatively low amounts of tax that, as a result of cross-border tax planning, many multinational enterprises pay. The issue itself, of course, is not new. What is new is the attention it is receiving from policy makers. Most notably, the G20-OECD project on base erosion and profit shifting ('BEPS') has been an unparalleled effort to strengthen the international corporate tax system by limiting opportunities for avoidance by multinationals, proposing action in a range of areas.1 More broadly too there is an increased awareness of the intensity of international tax competition, and the possibility of mutual harm from the attempts of each country to make its tax system more attractive than those of others.
These concerns with current international corporate tax arrangements have arisen most prominently in advanced economies. And it is they that drive the BEPS process.2 Clearly, however, these concerns may be ones for developing countries too. There is substantial experience, for instance, of even single international tax cases involving what are for these countries very significant amounts of revenue (IMF, 2014).3 Developing countries tend, moreover, to be more reliant on the corporate income tax as a share of all tax revenue than are higher income countries, as figure 1 shows, and have fewer realistic alternative sources of revenue. All this suggest that developing countries may well be more...