IMF Working Papers

Shaping Services Trade: The Heterogenous Effects of Withholding Taxes

By Li Liu, Alexander D Klemm, Parijat Lal

October 24, 2025

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Format: Chicago

Li Liu, Alexander D Klemm, and Parijat Lal. "Shaping Services Trade: The Heterogenous Effects of Withholding Taxes", IMF Working Papers 2025, 214 (2025), accessed October 26, 2025, https://doi.org/10.5089/9798229029292.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper investigates the effects of withholding taxes on cross-border trade in services, using a newly compiled dataset covering the universe of bilateral service imports and withholding tax rates from 2005 to 2021. Employing a theoretical framework that highlights the role of withholding taxes in curbing base-eroding payments, the empirical analysis reveals significant effects, with estimated semi-elasticities of 4 for royalties, 1 for technical fees, and 1 for total service import.

Subject: Corporate income tax, Double taxation, Imports, International trade, Taxes, Trade in services, Withholding tax

Keywords: Corporate income tax, Corporate Taxation, Double taxation, Imports, Profit Shifting, Services Trade, Trade in services, Withholding tax, Withholding Taxes

Publication Details

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