American Economic Journal: Economic Policy
no. 1, February 2023
Residual profit allocation (RPA) schemes have come to prominence in discussions of international tax reform but with almost nothing known about their economic impact. These schemes tax multinationals by allocating their "routine" profits to source countries and sharing their remaining "residual" profit across countries on some formulaic basis. This paper explores the implications, conceptual and empirical, of moving to some form of RPA. Residual profits are estimated to be substantial and concentrated in relatively few multinational enterprises. The impact on tax revenue appears beneficial for developing countries. Aggregate production efficiency is unlikely to increase unless routine profits are lightly taxed.
Beer, Sebastian, Ruud de Mooij, Shafik Hebous, Michael Keen, and Li Liu.
"Exploring Residual Profit Allocation."
American Economic Journal: Economic Policy,
Multinational Firms; International Business
Business Taxes and Subsidies including sales and value-added (VAT)
International Fiscal Issues; International Public Goods
Firm Performance: Size, Diversification, and Scope