The economics of the global minimum tax

Guttorm Schjelderup · Frank Stähler

21 citations0/0 files storedInternational Tax and Public Finance

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Corporate Taxation and Avoidance Economic and Fiscal Studies Taxation and Legal Issues

Abstract

Abstract This paper shows that the OECD inclusive framework of Pillar Two fails to implement the claimed 15% minimum corporate tax for subsidiaries of multinational corporations. The reason is that the Substance-based Income Exclusion of Pillar Two allows to tax-deduct payroll costs and user costs of intangible assets twice from the tax base of the top-up tax. Employing a standard multinational firm model, we show that Pillar Two dampens tax motivated transfer pricing, but changes the employment, investment and import incentives. For a sufficiently large cost share of labor and/or capital, the Substance-based Income Exclusion is equivalent to a production subsidy. Keywords: Corporate taxation, BEPS, Pillar~Two, minimum tax. JEL Classification: F23, F55, H25, H73.

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References

2003Strategic Interaction Among Governments: An Overview of Empirical Studies 1991Jeux Sans Frontieres: Tax Competition and Tax Coordination when Countries Differ in Size 2013The Theory of International Tax Competition and Coordination 2017Knocking on Tax Haven’s Door: Multinational Firms and Transfer Pricing 2017Multinationals’ profit response to tax differentials: Effect size and shifting channels 2000Corporate tax systems and cross country profit shifting 2009Company taxation and tax spillovers: Separate accounting versus formula apportionment 1999Fortress Building in Global Tax Competition

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