Territorial vs. Worldwide Corporate Taxation: Implications for Developing Countries

By Thornton Matheson, Victoria J Perry, Chandara Veung

October 3, 2013

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Thornton Matheson, Victoria J Perry, and Chandara Veung. Territorial vs. Worldwide Corporate Taxation: Implications for Developing Countries, (USA: International Monetary Fund, 2013) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Global investment patterns mean that effective taxation of foreign investors is of increasing importance to the economies of lower income countries. It is thus of considerable concern that the historical framework for cross-border income tax arrangements is not always well suited to allow low-income countries (LICs) effectively to generate tax revenues from profits on foreign direct investment (FDI). Several aspects of this framework contribute to the problem. This paper discusses, in particular, the likely effect of a shift by major economies from the system of worldwide corporate taxation toward a territorial system on the volume, distribution, and financing of FDI, focusing on LICs. It then empirically analyzes bilateral outbound FDI data for the UK for 2002–10 to determine whether the move to territoriality made corporations more sensitive to hostcountry statutory tax rates. Supporting evidence for this hypothesis is found for FDI financed from new equity.

Subject: Balance of payments, Corporate income tax, Foreign direct investment, Income, Labor, National accounts, Taxes, Wages, Withholding tax

Keywords: CIT, CIT rate, CIT reduction, Corporate income tax, Country shift, Equilibrium rate, FDI flow, Foreign direct investment, Foreign direct investment in developing countries, Global, High-CIT rate, Host country rate, Income, Income effect, International corporate income tax, International taxation, Investing country, OECD country, Rate, Tax rate, Territorial taxation, Territoriality dummy, Unweighted OECD CIT average, Wages, Withholding tax, Worldwide taxation, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/205
Stock No:

WPIEA2013205
ISBN:

9781484329764
ISSN:

1018-5941

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