Policy reform effects in the tax ecosystem: An agent-based simulation approach

Abstract

International tax policy reforms such as Country-by-Country Reporting and Automatic Exchange of Information aim to increase tax compliance and revenues. Using a tax ecosystems perspective, this chapterapplies an agent-based simulation to assess the effects of these reforms. We demonstrate for EU Member States and selected European countries that reforms can be counteracted by tax competition and tax spillover effects which reduce their effectiveness. The model estimates European corporate tax revenue losses from tax avoidance and evasion of €104.9 billion in 2019. Without further reforms they would increase to €135.8 billion in 2029. A complete implementation of both Country-by-Country Reporting and Automatic Exchange of Information would help to decrease the total CIT gap by 16.4 per cent to €113.5 billion in the year 2029 The model explains why the seemingly small effect of CbCR is not so small and why the effect of AEoI may not be as promising as it seems.