Profit Shifting, Withholding Taxes on Royalties, and Tax Competition Profit Shifting, Withholding Taxes on Royalties, and Tax Competition

Steffen Juranek, Dirk Schindler, Andrea Schneider, Steffen Juranek, Dirk Schindler, Andrea Schneider
unpublished
Since the pricing of intellectual property is widely used by multinationals to shift profits to tax havens, withholding taxes on royalties have become an important element of corporate taxation. This paper analyzes competition for mobile capital if the countries' policy instruments are statutory tax rates, thin capitalization rules and withholding taxes on royalties. In a symmetric tax competition equilibrium, the first two instruments are set inefficiently low, while the latter is chosen
more » ... ently. Withholding taxes on royalties are, therefore, proven to be an effective policy instrument to mitigate profit shifting even if countries compete for mobile resources. JEL classification: H25; F23
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