The Direct and Indirect Costs of Tax Treaty Policy – Evidence from Ukraine

32 Pages Posted: 23 Feb 2017 Last revised: 8 Mar 2017

See all articles by Oleksii Balabushko

Oleksii Balabushko

World Bank

Sebastian Beer

Oesterreichische Nationalbank (OeNB); Vienna University of Economics and Business - Department of Economics

Jan Loeprick

Vienna University of Economics and Business; World Bank

Felipe Vallada

Institute for Austrian and International Tax Law; Vienna University of Economics and Business - Institute for Austrian and International Tax Law; Vienna University of Economics and Business; University of Sao Paulo - Faculdade de Direito; University of São Paulo (USP)

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Date Written: February 22, 2017

Abstract

This study combines macro and micro data to quantify the revenue effects of double tax treaties. First, drawing on administrative information, the study estimates the tax sensitivity of income flows (dividend, interest, and royalty payments) at an aggregate level. The analysis finds important direct revenue costs linked to treaty restrictions on taxing rights, especially for flows into a few major investment hubs. However, high elasticities of income flows also suggest that increases in withholding rates at the individual treaty partner level would not necessarily result in more revenue collection. Second, the study uses firm-level information to estimate the sensitivity of reported profitability to changes in the relevant treaty network. The analysis of the reported earnings of multinational enterprise affiliates in Ukraine suggests that the ownership structure and operations with affiliates in certain jurisdictions explain reported profitability, and should thus receive increased attention in risk assessment and transfer pricing audit activities.

Keywords: Tax Treaty Policy, Transfer Pricing, Domestic Resource Mobilization, Ukraine

JEL Classification: F21, F23, H25, H26, H32

Suggested Citation

Balabushko, Oleksii and Beer, Sebastian and Loeprick, Jan and Vallada, Felipe, The Direct and Indirect Costs of Tax Treaty Policy – Evidence from Ukraine (February 22, 2017). WU International Taxation Research Paper Series No. 2017-01. Available at SSRN: https://ssrn.com/abstract=2922156 or http://dx.doi.org/10.2139/ssrn.2922156

Oleksii Balabushko

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Sebastian Beer

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
1090 Vienna
Austria

Vienna University of Economics and Business - Department of Economics ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Jan Loeprick (Contact Author)

Vienna University of Economics and Business ( email )

Wien
Austria

World Bank ( email )

Wien
Austria

Felipe Vallada

Institute for Austrian and International Tax Law ( email )

Welthandelplatz 1
Vienna, Vienna 1020
Austria

Vienna University of Economics and Business - Institute for Austrian and International Tax Law

Welthandelsplatz 1
Building D3
Vienna, Vienna 1020
Austria

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

University of Sao Paulo - Faculdade de Direito ( email )

Largo São Francisco, 95 Prédio Anexo
São Paulo, São Paulo 01005-010
Brazil

University of São Paulo (USP) ( email )

Rua Luciano Gualberto, 315
São Paulo, São Paulo 14800-901
Brazil

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