Less is More - Can Developing Countries Gain Tax Revenue by Giving up Taxing Rights?

Abstract

The international debate on tax avoidance lately is focused on digital business models. In the G20/OECD Inclusive Framework on BEPS 137 countries are currently developing the so-called Unified Approach to address the tax challenges arising from the digitalization of the economy. The aim of this paper is to examine the possible effects of the separate elements of the Unified Approach on tax revenue and investment levels for developing countries. The findings show that all the proposals are highly technical and would require much in terms of capacity of developing countries. Moreover, the extra tax revenue for developing countries is rather modest, certainly from some of the more complex proposals. This paper therefore suggests a number of alternate policy options to significantly reduce complexity, while ensuring developing countries gain the same or more in extra tax revenue. Moreover, one suggested alternative could effectively reduce harmful tax competition and prevent future tax disputes.

Keywords: Tax, OECD, Tax avoidance, Developing countries

JEL Classification: K34, O20, O40