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On the effects of anti-profit shifting regulations: A developing country perspective

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  • Laudage Teles, Sabine
  • Riedel, Nadine
  • Strohmaier, Kristina

Abstract

Multinational profit shifting is a major concern for low and middle income countries (LMICs). Many have enacted anti-profit shifting rules in order to constrain this type of tax avoidance behavior. Yet, not much is known on the rules’ effects. We offer a first empirical assessment, providing two pieces of evidence: First, we draw on macro data for more than 120 LMICs for a 30-year-period and show that the introduction of transfer pricing (TP) rules – provisions that constrain profit shifting from mis-pricing of intra-firm trade – significantly increased corporate tax revenue collection in LMICs. Second, we use rich tax administrative and trade data for South Africa to provide “first-stage” evidence for firms’ behavioral response to stricter TP provisions: we establish that a tightening of South African TP rules reduced intra-firm trade mis-pricing and increased taxable income reporting of affected multinational firms.

Suggested Citation

  • Laudage Teles, Sabine & Riedel, Nadine & Strohmaier, Kristina, 2024. "On the effects of anti-profit shifting regulations: A developing country perspective," Journal of Public Economics, Elsevier, vol. 235(C).
  • Handle: RePEc:eee:pubeco:v:235:y:2024:i:c:s0047272724000707
    DOI: 10.1016/j.jpubeco.2024.105134
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate taxation; International taxation; Transfer pricing laws;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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