draining development.pdf - Khazar University

4Tax Evasion and Tax Avoidance:The Role of InternationalProfit ShiftingClemens Fuest and Nadine RiedelAbstractIn the debate on the impact of illicit capital flows on developing countries,the view is widespread that profit shifting to low-tax jurisdictionsundermines the ability of developing countries to raise tax revenue.While the shifting of income out of developed countries is a widelydebated issue, empirical evidence on the magnitude of the problemand on the factors driving income shifting is scarce. This chapterreviews the literature on tax avoidance and evasion through bordercrossing income shifting out of developing countries. We discussmethods and available data sets that can be used to gain new insightsinto the problem of corporate income shifting. We argue that theresults of many existing studies on tax avoidance and evasion in developingcountries are difficult to interpret, mainly because the measurementconcepts used have a number of drawbacks. We discuss somealternative methods and data sets and present empirical evidence thatsupports the view that profit shifting out of many developing countriesand into tax havens takes place.Additional tables and figures from this chapter can be found at http://go.worldbank.org/N2HMRB4G20.109