Estimating profit shifting in South Africa using firm-level tax returns

Abstract

provides economic analysis and policy advice with the aim of promoting sustainable and equitable development. The Institute began operations in 1985 in Helsinki, Finland, as the first research and training centre of the United Nations University. Today it is a unique blend of think tank, research institute, and UN agency-providing a range of services from policy advice to governments as well as freely available original research. UNU-WIDER acknowledges specific programme contribution from the National Treasury of South Africa to its project 'Regional growth and development in Southern Africa' and core financial support to its work programme from the governments of Denmark, Finland, Sweden, and the United Kingdom.

Global distribution of revenue loss from corporate tax avoidance: re‐estimation and country results

“…However, neither of the two studies extend their results to provide tax revenue loss estimates. Reynolds and Wier () do extend their estimates to revenue but only for one country, South Africa, finding that profit‐shifting lowers the tax—GDP ratio by 0.05 percentage points. If accurate, that would suggest South Africa is more successful than the United States, for example, in preventing abuse—or alternatively, it could indicate that South Africa operates as a hub for profit‐shifting from elsewhere, reducing net losses to a negligible level.…”

Estimating the scale of profit shifting and tax revenue losses related to foreign direct investment

“…Indeed, for some much-studied countries such as the USA we do not expect the added value of our new estimates to be high; however, for many countries there are no estimates of profit shifting available and that is where we hope to make an important contribution. For developing countries, Johannesen and Pirttilä (2016) provide an overview and Johannesen et al (2017) offer firm-level empirical results, whereas one of the recent examples of revenue estimates comes from Reynolds and Wier (2016) for South Africa. Furthermore, at least three international organisations have recently developed estimates of the budgetary impact of international corporate tax avoidance for most of the world economy: OECD (2015a), IMF's Crivelli et al (2016) and UNCTAD (2015).…”

Tax research in South Africa

“…Finally, there are interesting studies in the area of taxing multinational companies. While controlling for other determinants of profitability, Reynolds and Wier (2016) estimate how the profits of multinationals based in South Africa are related to the tax rate of the parent company. The results from firm-level analysis suggest that reported profits in South Africa tend to be lower the lower the tax rate in the home country is, suggesting that multinational companies have managed to find ways to shift income using transfer mispricing.…”