Challenges of Monitoring Tax Compliance by Multinational Firms: Evidence from Chile
AbstractThis 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.
CitationBustos, Sebastián, Dina Pomeranz, José Vila-Belda, and Gabriel Zucman. 2019. "Challenges of Monitoring Tax Compliance by Multinational Firms: Evidence from Chile." AEA Papers and Proceedings, 109: 500-505. DOI: 10.1257/pandp.20191045
- F23 Multinational Firms; International Business
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H26 Tax Evasion and Avoidance
- O23 Fiscal and Monetary Policy in Development