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Challenges of monitoring tax compliance by multinational firms: evidence from Chile


Bustos, Sebastián; Pomeranz, Dina; Vila-Belda, José; Zucman, Gabriel (2019). Challenges of monitoring tax compliance by multinational firms: evidence from Chile. AEA Papers and Proceedings, 109:500-505.

Abstract

This paper reviews common challenges of taxing multinational firms, using Chile as a case study. We briefly describe key international tax avoidance methods: profit shifting to low-tax jurisdictions through transfer pricing and debt shifting. We discuss the prevalent policy to tax multinationals—the arm's length principle—and alternative proposals using apportionment formulas. Novel data from Chile show that multinationals make up a large share of GDP but report lower profit and effective tax rates than local firms. In 2011, Chile implemented a reform following OECD guidelines to enforce the arm's length principle. We discuss potential effects on tax collection and welfare.

Abstract

This paper reviews common challenges of taxing multinational firms, using Chile as a case study. We briefly describe key international tax avoidance methods: profit shifting to low-tax jurisdictions through transfer pricing and debt shifting. We discuss the prevalent policy to tax multinationals—the arm's length principle—and alternative proposals using apportionment formulas. Novel data from Chile show that multinationals make up a large share of GDP but report lower profit and effective tax rates than local firms. In 2011, Chile implemented a reform following OECD guidelines to enforce the arm's length principle. We discuss potential effects on tax collection and welfare.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:May 2019
Deposited On:14 Oct 2019 14:20
Last Modified:29 Jul 2020 11:28
Publisher:American Economic Association
ISSN:2574-0768
OA Status:Closed
Publisher DOI:https://doi.org/10.1257/pandp.20191045
Official URL:https://www.aeaweb.org/articles?id=10.1257/pandp.20191045

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