The Race Between Tax Enforcement and Tax Planning: Evidence From a Natural Experiment in Chile

Sebastian Bustos, Dina Pomeranz, Suárez Serrato, Juan Carlos, Vila-Belda, José and Gabriel Zucman
Authors registered in the RePEc Author Service: Juan Carlos Suárez Serrato

No 17347, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Profit shifting by multinational corporations is thought to reduce tax revenue around the world. We analyze the introduction of standard regulations aimed at limiting profit shifting. Using administrative tax and customs data from Chile in difference-in-differences event-study designs, we find that the reform was ineffective in reducing multinationals’ transfers to lower-tax countries and did not significantly raise tax payments. At the same time, interviews with tax advisors reveal a drastic increase in tax advisory services. The qualitative interviews also allow us to identify and then quantitatively confirm a common tax planning strategy in response to the reform. These results illustrate that when enforcement can be circumvented by sophisticated tax planning, it can benefit tax consultants at the expense of tax authorities and taxpayers.

JEL-codes: H25 H26 H32 (search for similar items in EconPapers)
Date: 2022-05
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Working Paper: The Race Between Tax Enforcement and Tax Planning: Evidence From a Natural Experiment in Chile (2022)
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