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Challenges of Monitoring Tax Compliance by Multinational Firms: Evidence from Chile

Author

Listed:
  • Sebastián Bustos
  • Dina Pomeranz
  • José Vila-Belda
  • Gabriel Zucman

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.

Suggested Citation

  • Sebastián Bustos & Dina Pomeranz & José Vila-Belda & Gabriel Zucman, 2019. "Challenges of Monitoring Tax Compliance by Multinational Firms: Evidence from Chile," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 500-505, May.
    • Handle: RePEc:aea:apandp:v:109:y:2019:p:500-505
    Note: DOI: 10.1257/pandp.20191045
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    File URL: https://www.aeaweb.org/doi/10.1257/pandp.20191045
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    Citations

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    Cited by:

    1. Hayley Pallan, 2022. "Sovereign Spreads and Corporate Taxation," IHEID Working Papers 15-2022, Economics Section, The Graduate Institute of International Studies.
    2. Toledo, Katia & Alvarado, Alfredo, 2023. "Tackling BEPS in the Global South: Evidence from Peru’s tax reform," Economic Systems, Elsevier, vol. 47(3).
    3. Bakke, Julia Tropina & Hopland, Arnt Ove & Møen, Jarle, 2019. "Profit shifting and the effect of stricter transfer pricing regulation on tax revenue," Discussion Papers 2019/11, Norwegian School of Economics, Department of Business and Management Science.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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