How large is the corporate tax base erosion and profit shifting? A general equilibrium approach

Abstract

The paper uses the computable general equilibrium model CORTAX to analyse the extent of base erosion and profit shifting (BEPS) in the EU, Japan and the US. Our approach estimates the direct fiscal losses of BEPS and accounts for the second round effects, in particular on the cost of capital and corporate investment. Our central estimates show that the net corporate tax revenue losses in the EU are €36.0 billion per year (7.7% of CIT revenues), e24.0 billion in Japan and €100.8 billion in the US (in both cases representing 10.7% of corporate tax revenues). Our estimates are comparable in size to the global tax revenue losses found using newly reported statistics on foreign affiliates. Our macroeconomic results suggest that eliminating profit shifting would slightly reduce investment and GDP and rise corporate tax revenues, which would positively affect welfare.