Exploring Residual Profit Allocation

Author:

Beer Sebastian1,de Mooij Ruud1,Hebous Shafik1,Keen Michael2,Liu Li1

Affiliation:

1. Fiscal Affairs Department, International Monetary Fund (email: )

2. Tokyo College, University of Tokyo, and CERDI, Université Clermont Auvergne (email: )

Abstract

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. (JEL F23, H25, H87, L25)

Publisher

American Economic Association

Subject

General Economics, Econometrics and Finance

Reference44 articles.

1. Cash-Flow Taxes in an International Setting

2. Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence

3. Beer, Sebastian, Ruud de Mooij, Shafik Hebous, Michael Keen, and Li Liu. 2020. "Exploring Residual Pro t Allocation." IMF Working Paper 20/49.

4. Beer, Sebastian, Ruud de Mooij, Shafik Hebous, Michael Keen, and Li Liu. 2023. "Replication data for: Exploring Residual Pro t Allocation." American Economic Association [publisher], Inter-university Consortium for Political and Social Research [distributor]. https://doi.org/10.3886/E147621V1.

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