ATP Identification Using Balance of Payments Data: Case of the Czech Republic

Multinational enterprises apply aggressive tax planning (ATP) to optimize global tax liability usually by combining parameters of different tax systems in both national jurisdictions and double tax treaties. At a macroeconomic level, the implementation of various optimization schemes affects the given values of the balance of payments. By conducting econometric analysis, the present paper examines the extent to which selected optimization schemes can be traced in the Czech Republic's balance of payments. The results show that payments for counselling services and royalties flow mostly to locations with low corporate tax rates, which may suggest an attempt to shift the tax base. Moreover, dividend and interest yields tend to move to countries with high foreign direct investments (FDIs) and balanced ratios between FDIs received and made, indicating that they are only conduit (transit) countries through which profits are transferred to another destination.