Profit Shifting and 'Aggressive' Tax Planning by Multinational Firms: Issues and Options for Reform

Fuest, Clemens; Spengel, Christoph; Finke, Katharina; Heckemeyer, Jost H.; Nusser, Hannah

doi:10.2139/ssrn.2303676

Cited by 13 publications

(1 citation statement)

References 24 publications

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“…With respect to royalty taxes, Fuest, Spengel, Finke, Heckemeyer, and Nusser (, section ) propose withholding taxes on royalty payments that are creditable in the residence country as one policy option to reduce base erosion and profit shifting (BEPS). In a brief statement, the authors verbally discuss the scope of such a measure.…”

Section: Introductionmentioning

confidence: 99%

Transfer pricing regulation and taxation of royalty payments

Juranek

Schindler

Schjelderup

2017

J Public Economic Theory

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The digital economy is characterized by the use of intellectual property such as software, patents, and trademarks. The pricing of such intangibles is widely used to shift profits to low‐tax countries. We analyze the implications of different OECD methods to regulate transfer pricing and the role of a source tax on royalty payments for abusive transfer pricing. First, we show that under the traditional transfer pricing methods mispricing of royalty payments does not affect investment behavior. In contrast, the Transactional Profit Split Method that is promoted by the OECD for evaluating firms in the digital economy triggers higher investment in order to facilitate higher profit shifting. Second, royalty taxation is effective in reducing (such) abusive profit shifting, but always reduces investment. Third, a royalty tax rate below the corporate tax rate leads to overinvestment in a tax system with allowance for corporate equity (ACE).

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Section: Introductionmentioning

confidence: 99%