 Measurement of base erosion and profit shifting phenomena through the analysis of FDI stocksPaolo Acciari, Francesca Tomarelli, Laura Limosani and Laura Benedetti No 3, Working Papers from Department of the Treasury, Ministry of the Economy and of Finance Abstract: This work is intended to provide a useful contribution to the OECD-G20 project to address the issue of international tax avoidance by multinational corporations, known as Base Erosion and Profit Shifting (BEPS), focused on the issue of “how big a problem is BEPS†. The main difficulties encountered in the assessment of the scale and impact of Base Erosion and Profit Shifting stem from: i) the variety and complexity of the tax planning strategies exploited by multinational corporations to reduce their corporate tax burden; ii) the lack of complete and reliable worldwide corporate micro-data sources; iii) the absence of an exhaustive tax variable to identify a low-tax system, since neither the statutory tax rate nor the different specifications of the effective tax rates are sufficiently accurate for this purpose. The assessment strategy described in this work tries to overcome the aforementioned difficulties by basing the analysis on inward FDI stocks for a wide set of countries, leading to an indirect identification of foreign direct investments that are driven by BEPS phenomena as those FDI stocks that are not justified by economic reasons. With particular attention to the consistency and quality of the recorded information, the econometric analysis performed makes use of a database constructed with information provided by different data sources (UNCTAD, The World Bank, International Telecommunications Union International Labour Organization, Transparency International, WTO, UNESCO, IMF, WGI) for the years 2005-2012, and available for a set of 172 countries. The data used for each country refer to structural and context variables identified in the economic literature as FDI determinants, such as: gross domestic product (GDP), infrastructures, labour market, degree of openness to foreign markets, inflation, etc. Through the application of a mixed model on repeated observations, it was possible to identify an econometric function to obtain a point estimate of the inward FDI stock for each country. This point estimate displays two components: a fixed effect (for all countries), regarding the structural and context variables identified in the model, and a variable intercept with a random effect, which captures the individuality of each country in that it explains the differences linked to the exploitation of favourable tax systems, to incentive policies targeted at foreign investors, or to other aspects that are not directly captured by the explanatory variables in the fixed part of the model. Therefore, positive intercepts identify those countries attracting a greater amount of foreign direct investments, and are a proxy of the share of inward FDI stocks at risk of BEPS. Keywords: BEPS; MNEs; corporate income tax; inward FDI; mixed models; OECD (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:itt:wpaper:2015-3 Access Statistics for this paper More papers in Working Papers from Department of the Treasury, Ministry of the Economy and of Finance Contact information at EDIRC. |
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