IDEAS home Printed from https://ideas.repec.org/a/kap/itaxpf/v32y2025i5d10.1007_s10797-025-09890-z.html
   My bibliography  Save this article

Tax avoidance by redirecting royalty flows: estimating the global revenue loss

Author

Listed:
  • Arjan Lejour

    (Tilburg University
    CPB Netherlands Bureau for Economic Policy Analysis)

  • Maarten van ’t Riet

    (CPB Netherlands Bureau for Economic Policy Analysis
    Leiden University)

Abstract

Redirecting royalty payments across jurisdictions is a well-known strategy of large multinationals to reduce corporate income taxation. The global impact of these taxes on the direction and size of the royalty payments is, however, seldom investigated. From our network analysis, based on national and bilateral tax rates, we infer which bilateral payments could be tax motivated and which could only be business motivated. Next, we apply a gravity framework with PPML estimators to explain the variation in the latter payments. Using these regression outcomes to predict the business motivated content of the other royalty payments, we find that 13–25% of all flows is motivated by tax planning, which reduces tax revenues by 3.3–8 billion US dollar in 2018 in our preferred specification. We argue that both estimates are lower bounds, mainly due to missing observations. To the best of our knowledge these are the first estimates of the global tax revenue loss by redirecting royalties.

Suggested Citation

  • Arjan Lejour & Maarten van ’t Riet, 2025. "Tax avoidance by redirecting royalty flows: estimating the global revenue loss," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(5), pages 1289-1334, October.
    • Handle: RePEc:kap:itaxpf:v:32:y:2025:i:5:d:10.1007_s10797-025-09890-z
    DOI: 10.1007/s10797-025-09890-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10797-025-09890-z
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10797-025-09890-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:32:y:2025:i:5:d:10.1007_s10797-025-09890-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.