Incentives and Information Exchange in International Taxation |
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Authors: | Michael Keen Jenny E Ligthart |
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Institution: | (1) Fiscal Affairs Department, International Monetary Fund, 700 19th Street, N.W., Washington D.C. 20431, USA;(2) Department of Economics and CentER, Tilburg University, 90153, 5000 LE Tilburg, The Netherlands |
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Abstract: | The exchange of taxpayer-specific information between national tax authorities has recently emerged as a key and controversial
topic in international tax policy discussions, most notably with the OECD's harmful tax practices project and the EU's savings
tax initiative. This paper analyzes the effects of information exchange and withholding taxes, recognizing that countries
which agree to exchange information do not forfeit the ability to levy withholding taxes, and also focusing in particular
on the effects of innovative revenue-sharing arrangements. Amongst the findings are that: (i) the transfer of withholding
tax receipts to the residence country, as planned in the European Union, has no effect on equilibrium tax rates, but acts
purely as a lump-sum transfer; (ii) in contrast, allocating some of the revenue from information exchange to the source country—counter
to usual practice (though no less so than the EU agreement)—would have adverse strategic effects on total revenue; (iii) nevertheless,
any withholding tax regime is Pareto dominated by information exchange combined with appropriate revenue sharing; and, in
particular, (iv) sharing of the additional revenues raised from information provided, while efficiency-reducing, could be
in the interests of large countries as a means of persuading small countries to provide that information voluntarily.
JEL Code: H77, H87, F42 |
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Keywords: | international tax competition international tax evasion information exchange withholding taxes |
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