Papers & Reports

This paper explores the relationship between tax incentives and the FDI location motive as a possible reason for the mixed empirical evidence. Specifically, it examines – for Indonesia -- if the tax incentives are more effective where costs considerations matter, and if they are allocated indiscriminately with respect to the investment motive. The study is based on a survey of 224 foreign-owned plants. The authors find that tax incentives are allocated randomly by motive, and that the incentives are less likely to go to labor, implying that cost considerations do not matter for the effectiveness of the incentives. Among the possible reasons for this, the authors suggest that incentives may serve objectives that are beyond the purely economic.

Tax is a hybrid of civil, common, public, and private law. Tax law has become an all-purpose tool for legislators. This article argues that the success of the BEPS projects depends on the uniformity of taxation principles through the convergence of systemic differences. Tax hybridity should nudge jurisdictions to harness their legal creative power. This should facilitate tax working towards transparent uniform rule-making that is free from opportunities for arbitrage and competition. This global cooperation on convergence and uniformity free from tax competition will depend on revenue distribution between nations. The author argues that this revenue distribution is necessary for developing nations to build a more effective tax system.

The Global Minimum Tax (GMT) is applied only to firms above a certain size threshold, permitting countries to set differential tax rates for small and large firms. The authors analyze tax competition between a tax haven and a non-haven country for heterogeneous multinationals to evaluate the effects of this partial coverage of GMT.  The paper shows that the introduction of a moderate GMT increases tax revenues in both the haven and the non-haven countries. Gradual increases in the GMT rate, however, induce the haven to set a discriminatory, lower tax rate on small multinationals, causing revenues in the non-haven country to decline at the switch of regimes.

The authors explore the intercompany cross-border trade involving Indonesian entities between 2018 and 2022. They do this to assess the risk of undervaluing in the export/import of goods with machine learning algorithms. Utilizing both micro and macro-level data, this study uncovers unique intercompany cross-border patterns, exposing a higher risk of undervaluing in cross-border trade between Indonesian entities and their counterparts overseas. This paper indicates several findings. It specifically indicates that foreign investment-based companies are more inclined to engage in cross-border trade compared to domestic-based companies, and trade transactions with low-tax jurisdictions pose a higher risk of undervaluation trade.

Gitarani Prastuti, Indah Permatasari, Lasmin, Ag. Sigit Adi Satmoko, & Arman Imran, Detecting Cross-Border Transaction Patterns Using Machine Learning: The Case of Indonesia, 16 Jurnal BPPK 132 (2023).

This Consolidated Commentary incorporates Agreed Administrative Guidance that has been released by the Inclusive Framework since March 2022 up until December 2023. It provides tax administrations and taxpayers with guidance on the interpretation and application of the GloBE Rules in order to promote a consistent and common interpretation and application of those that will facilitate coordinated outcomes for both tax administrations and MNE Groups.

This working paper reviews the literature providing empirical estimates on the tax elasticity of multinational profits and discusses the challenges faced when attempting to quantify tax-motivated profit shifting. The authors first use micro-level data to show that multinational corporations hold a disproportionately large share of profits and financial assets in tax havens, relative to real activities in these countries. The paper argues that tax notches associated with anti-tax avoidance legislation may be exploited to better understand tax-motivated profit shifting. This approach suggests a semi-tax elasticity of pre-tax profits of about 0.22, which is substantially smaller than estimates provided in earlier studies.

This working paper examines how import competition affects sentiment toward China in local communities within the United States using a news-based index for sentiment. The authors find that commuting zones that bear the brunt of the trade shock exhibit significantly more negative shifts in sentiment. This adverse effect is not confined to economic and financial news but permeates a range of topics such as military/security and human rights. The negative effect on news-based sentiment persists over time and is robust to various checks. Our findings suggest that competition over trade may have important geopolitical implications through the sentiments of local communities.

This paper aims to explore the possibility of a UN Framework Convention on International Tax Cooperation (FCITC). The author argues that the creation of this framework is an opportunity for an institutional and conceptual reset. This reset is aimed at re-establishing a global perspective that has been disrupted by the assumption of an increasingly dominant role in international tax by the OECD. The author argues that the OECD’s expansive approach has taken place in counterpoint with growing concerns about the dysfunctionality of that approach and that the current process should learn from the past to design a global framework fit for the future by embodying the general principles that have come to be recognized as essential guideposts for effective international tax reform.

This working paper investigates whether artificial intelligence should be taxed independently from its controllers and how this taxation could be used to benefit tax administration while being a positive influence for private sector stakeholders. The authors propose that autonomous AI has started a transformation in the way legal systems around the world assign rights and obligations. Implementing a tax on the profits generated by autonomous systems is not only coherent with the current business entity model of taxation, but it is also an effective way to address the international tax challenges arising from AI operating in multiple jurisdictions.

Reuven S. Avi-Yonah & Lucas Salama, Taxation of Autonomous Artificial Intelligence: Socially Sustainable Expansion of Automation and Impacts on International Tax, U. Mich. Pub. L. Rsch. (forthcoming).

This article focuses on the tax implications and challenges that arise from the increasing mobility of human capital, and the necessary modifications that should be taken to strengthen the operation of the tax rules within the existing treaty network. The authors argue that taxing rules need modification to catch up with changes in technology and its effect in diminishing the significance of geographical nexus to more fairly allocate taxing rights among countries. International tax regime measures must acknowledge that, more often than not, individual taxpayers may have meaningful social and economic allegiances with more than a single taxing jurisdiction, and the geographical nexus may, in certain instances, be of less relevance than the personal nexus.

Tamir Shanan & Doron Narotzki, Tax Treaties and Denizenship Based Tax Systems, 36 N.Y. Int’l L. Rev. 57 (2023).