Base erosion, profit shifting, and tax revenue nexus: Empirical evidence in Southeast Asian countries

Abstract

This chapter estimates the effect of base erosion and profit shifting (BEPS) related to foreign direct investments (FDIs) on tax revenue losses in Southeast Asian countries. ASEAN members are mainly developing countries that have few experiences in aggressive tax planning of multinational enterprises (MNEs). Particularly, this chapter measures BEPS by the offshore indicator. The Offshore Investment Matrix approach shows that 3.6% of the total inward FDI stock of six Southeast Asian countries comes from offshore investment hubs. Then, this indicator is used as an input to estimate empirically the impact of the share of FDI from tax havens to the rate of return on FDI in ASEAN countries. Finally, a compatible stimulation evaluates the tax revenue losses from BEPS. The result implies the stimulated after-tax profit shifting is about $95.55 billion, which indicates tax revenue losses of $18.56 billion for Southeast Asian countries.