International Tax

Low-income countries are more dependent on corporate income tax revenue than richer countries, and at the same time, disproportionately affected by multinational tax avoidance. Our research on this theme investigates ways in which developing countries can protect their tax bases, including through simplified transfer pricing methods and improved tax treaty policies. It also examines the challenges and opportunities developing countries face from their participation in international tax negotiations.

Publications:

August 2020
A Simplified Method for Taxing Multinationals for Developing Countries: Building on the ‘Amount B’ Proposal to Repair the Transactional Net Margin Method
by Michael C. Durst

This paper considers whether the ‘Amount B’ proposal currently being negotiated in the Inclusive Framework, for the attribution of fixed remuneration for the ‘routine’ distribution and marketing activities of MNE affiliates, may offer a useful template for the re-working of the widely used ‘transactional net margin’ transfer pricing method (TNMM). The TNMM has for years…

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The Appropriateness of International Tax Norms to Developing Country Contexts
by Martin Hearson, Joy W. Ndubai & Tovony Randriamanalina

This FACTI Background Paper considers six sets of international tax norms: tax treaties (often known as double taxation agreements), transfer pricing rules, mutual assistance agreements between states, state-state and investor-state tax dispute resolution mechanisms, coercive mechanisms that oblige states to adopt international tax norms or face sanctions from powerful states, and finally the embryonic framework…

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July 2020
What is ‘Offshore’? International Tax Evasion and Avoidance and How to Combat it
by Sol Picciotto

This briefing aims to explain the ‘offshore’ system which enables both evasion and avoidance of tax, as well as of other types of laws and regulations, and discusses countermeasures. All illicit cross-border financial flows exploit the offshore system, so understanding how it works is the key to ensuring effective and coherent countermeasures, in relation to…

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June 2020
A Simplified Method for Taxing Multinationals for Developing Countries: Building on the ‘Amount B’ Proposal to Repair the Transactional Net Margin Method
by Michael C. Durst

This paper considers whether the ‘Amount B’ proposal currently being negotiated in the Inclusive Framework, for the attribution of fixed remuneration for the ‘routine’ distribution and marketing activities of MNE affiliates, may offer a useful template for the re-working of the widely used ‘transactional net margin’ transfer pricing method (TNMM). The TNMM has for years…

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Review of Tax Treaty Practices and Policy Framework in Africa
by Catherine Ngina Mutava

Tax treaties are agreements through which two countries agree to assign and restrict taxing rights on economic activities that span both countries. They were traditionally concluded mainly to avoid double taxation and create a favourable investment climate. However, in recent years, tax treaties concluded by sub-Saharan African countries – with OECD countries in particular –…

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June 2020
The Taxation of the Digitalised Economy: An African Study
by Mustapha Ndajiwo

The advent of digitalised business models has considerable potential to improve trade in Africa, however, it has greatly exacerbated the two central challenges of international tax. The first challenge is the definition of taxable presence, and the second is the allocation of business profits of multinational enterprises (MNEs) among the different jurisdictions where they operate….

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Addressing the Challenges of Taxation of the Digital Economy: Lessons for African Countries
by Solomon Rukundo

The rapid growth of the digital economy in many African countries poses serious challenges to traditional tax regimes. Revenue authorities must protect their revenue base without hindering the development and use of new technologies or the business community’s involvement in the e-marketplace. Two international taxation rules pose a challenge to taxing the global digital economy….

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January 2020
Corporate Tax Negotiations at the OECD: What’s at Stake for Developing Countries in 2020?
by Martin Hearson

We could be in the midst of the biggest change to the way multinational companies are taxed in decades. In January 2019, over 130 developed and developing countries committed to ‘go beyond’ some of the fundamental principles that have underpinned cooperation on corporate taxation for a century (OECD 2019a). They opened negotiations to redistribute ‘taxing…

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January 2020
Addressing the Challenges of Taxation of the Digital Economy: Lessons for African Countries
by Solomon Rukundo

The rapid growth of the digital economy in many African countries has led to concerns about whether their tax regimes are equipped to deal with this new phenomenon. The shift from a traditional bricks and mortar commercial environment to one that is electronic and information-based poses serious and substantial challenges to traditional tax regimes. African…

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December 2019
Review of Tax Treaty Practices and Policy Framework in Africa
by Catherine Ngina Mutava

In recent years, tax treaties concluded by sub-Saharan African countries have become more residence-based with fewer provisions allocating taxing rights to the source countries. This trend is observed in treaties signed with OECD countries in particular. For countries which are capital importers, as is the case with most African countries, this means that these countries…

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Blogs:

August 2020
by Joy Ndubai

The increased emphasis on the role of sustainable financing to support the realisation of the Sustainable Development Goals (SDGs) in 2015 underscored a renewed initiative to enhance domestic resource mobilisation (DRM), especially in developing countries. Under target 17.1 of the SDGs, countries committed to strengthen DRM through international support to developing countries to improve, in…

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August 2020
by Dibya Prakash Behera & Hrishav Kumar

More and more countries, including developing countries, are introducing unilateral measures to adapt their corporate tax rules to a digitalising economy. For countries as varied as Kenya, India and Tunisia, this has taken the form of a tax on digital services provided by foreign companies, often referred to collectively as Digital Services Taxes (DSTs), or…

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July 2020
by Jeroen Lammers

Developing countries lose substantial revenues every year to corporate tax avoidance, exacerbated by globalization and digitalization. As part of the OECD/G20 project on addressing the tax challenges of the digitalization of the economy, the OECD secretariat have recently presented the Unified Approach (UA) to deal with the tax revenue losses from digitalization, by giving market…

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Research Projects:

Past Project
Tax Treaties and High Growth Entrepreneurship: Firm-Level Evidence across Developing African Countries
Project Researchers: Uchenna Efobi, Covenant University & Oluwabunmi Adejumo

This research sets out to answer two main research questions. They include: What is the impact of Ratified Tax Treaties on small business development in the African region? Are there heterogeneous differences in this impact when considering the treaty partner, the type of treaty, and the proportion of foreign ownership of small businesses in the…

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Past Project
Double Tax Treaty Aggressiveness: Who is bringing down withholding taxes in Africa?
Project Researchers: Markus Meinzer, Maimouna Diakite, Lucas Millan & Mirsolav Palansky

This paper asks two interrelated questions, one focusing on a substantive issue, and the other focusing on methodological issues. First, what countries are most aggressive in clipping taxing rights through tax treaties in Africa? Second, how sensitive are the findings to different measures of treaty content and aggressiveness? In the context of efforts to mobilise…

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Past Project
Effective Tax Rates of Multinational Enterprises in Low- and Middle-Income Countries: Evidence from Country by Country Reporting
Project Researchers: Petr Janský & Javier García Bernardo

This project will look at the economic activities and taxes reported by large US MNCs in low- and middle-income countries – in contrast with other countries and other data sources. The researchers will present all the information in a paper that could be published in an ICTD working paper series and submitted to a leading…

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Past Project
Taxing international shipping in Africa: the source taxation alternative
Project Researchers: Tatiana Falcao, European University Institute & Bob Michel

The central question we want to address is whether African countries should consider taxing profits from international shipping derived by non-resident shipping companies and which are the policy options available for them to do so. We believe the question fits in with current calls in international tax demanding for the re-evaluation of the century-old rules…

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