Territorial vs. Worldwide Corporate Taxation: Implications for Developing Countries

Thornton Matheson, Victoria Perry and Chandara Veung

No 2013/205, IMF Working Papers from International Monetary Fund

Abstract: Global investment patterns mean that effective taxation of foreign investors is of increasing importance to the economies of lower income countries. It is thus of considerable concern that the historical framework for cross-border income tax arrangements is not always well suited to allow low-income countries (LICs) effectively to generate tax revenues from profits on foreign direct investment (FDI). Several aspects of this framework contribute to the problem. This paper discusses, in particular, the likely effect of a shift by major economies from the system of worldwide corporate taxation toward a territorial system on the volume, distribution, and financing of FDI, focusing on LICs. It then empirically analyzes bilateral outbound FDI data for the UK for 2002–10 to determine whether the move to territoriality made corporations more sensitive to hostcountry statutory tax rates. Supporting evidence for this hypothesis is found for FDI financed from new equity.

Keywords: WP; tax rate; CIT; rate; CIT rate; international corporate income tax; international taxation; worldwide taxation; territorial taxation; foreign direct investment in developing countries; host country rate; FDI flow; unweighted OECD CIT average; territoriality dummy; investing country; OECD country; equilibrium rate; country shift; CIT reduction; income effect; high-CIT rate; Corporate income tax; Foreign direct investment; Wages; Income; Withholding tax; Global (search for similar items in EconPapers)
Pages: 25
Date: 2013-10-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40981 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2013/205

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi (amodi@imf.org).