Exploring Residual Profit Allocation

Abstract

Schemes of residual profit allocation (RPA) tax multinationals by allocating their ‘routine’ profits to countries in which their activities take place and sharing their remaining ‘residual’ profit across countries on some formulaic basis. They have recently and rapidly come to prominence in policy discussions, yet almost nothing is known about their impact on revenue, investment and efficiency. This paper explores these issues, conceptually and empirically. It finds residual profits to be substantial, but concentrated in a relatively few MNEs, headquartered in few countries. The impact on tax revenue of reallocating excess profits under RPA, while adverse for investment hubs, appears beneficial for lower income countries even when the formula allocates by destination-based sales. The impact on investment incentives is ambiguous and specific both to countries and MNE groups; only if the rate of tax on routine profits is low does aggregate efficiency seem likely to increase.

Hide-Seek-Hide? The Effects of Financial Secrecy on Cross-Border Financial Assets

“…Overall, our results are thus consistent with the emerging consensus of the existing literature that automatic information exchange is an effective tool to discourage investors from holding money in offshore bank accounts. At the same time, however, our results show alarming sensitivity of portfolio investment to changes in secrecy, consistent with the fact that portfolio investment data covers many of the strategies that are used by investors to circumvent emerging transparency policy initiatives, as argued by Beer et al (2020).…”

Re-Allocating Taxing Rights and Minimum Tax Rates in International Profit Taxation

“…Related papers explore more specific aspects of the OECD reform proposal using data on multinational enterprise groups. For example, Beer, de Mooij, Hebous, Keen, and Liu (2020) analyse the implications of residual profit allocation used in Pillar 1 of the proposal. de Mooij, Liu, and Prihardini (2019) analyse the effects of formula apportionment within international tax reform.…”

La contabilidad del beneficio residual

“…En los últimos años, sin embargo, ha vuelto a tomar relevancia, esta vez por motivos fiscales, pues va a ser el eje vertebrador de la fiscalidad de las grandes multinacionales. En este sentido, pese a que ha pasado a ocupar un lugar prominente en la teoría de la imposición y haber recibido un análisis desde el punto de vista tributario (OCDE, 2020) y económico (Beer et al, 2020), es llamativa la escasa atención que la investigación contable está dedicando a este tema. Este artículo busca revertir este estado de cosas.…”