Shaping Services Trade: The Heterogenous Effects of Withholding Taxes

Li Liu, Alexander Klemm and Parijat Lal

No 2025/214, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates the effects of withholding taxes on cross-border trade in services, using a newly compiled dataset covering the universe of bilateral service imports and withholding tax rates from 2005 to 2021. Employing a theoretical framework that highlights the role of withholding taxes in curbing base-eroding payments, the empirical analysis reveals significant effects, with estimated semi-elasticities of 4 for royalties, 1 for technical fees, and 1 for total service import.

Keywords: Services Trade; Corporate Taxation; Withholding Taxes; Profit Shifting; services import; IMF working papers; service import; base-eroding payment; WHT rate; Withholding tax; Imports; Corporate income tax; Trade in services; Income tax systems; Global (search for similar items in EconPapers)
Pages: 38
Date: 2025-10-24
New Economics Papers: this item is included in nep-pbe and nep-pub
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