Data and Code for "Exploring Residual Profit Allocation"

Residual profit allocation (RPA) schemes have rapidly come to prominence in discus- sions of international tax reform, but with almost nothing known about their economic impact. These schemes tax multinationals by allocating their ‘routine’ profits to coun- tries in which their activities take place and sharing their remaining ‘residual’ profit across countries—including perhaps ‘destination’ countries, in which they may have no physical presence but only a digital one—on some formulaic basis. These are fundamen- tal departures from century-old norms. This paper explores the implications, conceptual and empirical, of moving to some form of RPA. Residual profits are estimated to be substantial, concentrated in relatively few multinationals that are relatively heavy in intangible assets, and with by far the largest share accruing to those headquartered in the United States. The impact on tax revenue of adopting a destination-based RPA is substantial for many countries; while adverse for investment hubs, it appears, strik- ingly, to be beneficial for developing countries. The directional impact on investment is specific to both countries and multinationals, and aggregate production efficiency is unlikely to increase unless routine profits are lightly taxed.