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The direct and indirect costs of tax treaty policy : evidence from Ukraine

Author

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  • Balabushko,Oleksii
  • Beer,Sebastian
  • Loeprick,Jan
  • Pinto Vallada,Felipe

Abstract

This study combines macro and micro data to quantify the revenue effects of double tax treaties. First, drawing on administrative information, the study estimates the tax sensitivity of income flows (dividend, interest, and royalty payments) at an aggregate level. The analysis finds important direct revenue costs linked to treaty restrictions on taxing rights, especially for flows into a few major investment hubs. However, high elasticities of income flows also suggest that increases in withholding rates at the individual treaty partner level would not necessarily result in more revenue collection. Second, the study uses firm-level information to estimate the sensitivity of reported profitability to changes in the relevant treaty network. The analysis of the reported earnings of multinational enterprise affiliates in Ukraine suggests that the ownership structure and operations with affiliates in certain jurisdictions explain reported profitability, and should thus receive increased attention in risk assessment and transfer pricing audit activities.

Suggested Citation

  • Balabushko,Oleksii & Beer,Sebastian & Loeprick,Jan & Pinto Vallada,Felipe, 2017. "The direct and indirect costs of tax treaty policy : evidence from Ukraine," Policy Research Working Paper Series 7982, The World Bank.
    • Handle: RePEc:wbk:wbrwps:7982
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    Citations

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    Cited by:

    1. Beer,Sebastian & Loeprick,Jan, 2018. "The Cost and Benefits of Tax Treaties with Investment Hubs : Findings from Sub-Saharan Africa," Policy Research Working Paper Series 8623, The World Bank.
    2. Petr Janský & Jan Láznička & Miroslav Palanský, 2021. "Tax treaties worldwide: Estimating elasticities and revenue foregone," Review of International Economics, Wiley Blackwell, vol. 29(2), pages 359-401, May.
    3. Sebastian Beer & Ruud de Mooij & Li Liu, 2020. "International Corporate Tax Avoidance: A Review Of The Channels, Magnitudes, And Blind Spots," Journal of Economic Surveys, Wiley Blackwell, vol. 34(3), pages 660-688, July.
    4. Lejour, Arjan, 2021. "The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance," Other publications TiSEM e0530ca3-b3b3-4aca-826b-d, Tilburg University, School of Economics and Management.
    5. Lejour, Arjan, 2021. "The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance," Discussion Paper 2021-014, Tilburg University, Center for Economic Research.
    6. Sebastian Beer & Jan Loeprick, 2021. "Too high a price? Tax treaties with investment hubs in Sub-Saharan Africa," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 113-153, February.

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