RevenueEffectsoftheGlobalMinimumTaxUnderPillar
Two
MonaBaraké*,Paul-EmmanuelChouc**,TheresaNeef*** &GabrielZucman****
InOctober2021,137countriesandjurisdictionsagreedtoimplementamajorreformoftheinternationalcorporatetaxsystem,i.e.,aglobalminimum tax of15%ontheprofitsoflargemultinationalcompanies.Thisarticlepresentssimulationsoftherevenueeffectsoftheglobalminimumtax.Twopossible scenariosareconsideredregardingwhocollectstheminimumtax:Thecountryinwhichtheheadquartersarelocatedbasedontheincomeinclusionrule (IIR)orthehostcountryofforeignaffiliatesaslaidoutunderthequalifieddomesticminimumtop-uptax(QDMTT).TheOrganizationforEconomic CooperationandDevelopment’s(OECD’s)tabulatedcountry-by-countryreport(CbCR)statisticsarecomplementedwithdatabyTørslov,Wier,and Zucman(2020).Basedonasampleofeighty-threeparentcountries,itisestimatedthatheadquarterscountriescouldcollectatotalrevenueofEUR179 billionglobally.TheEUMemberStatescouldreceiveEUR67billionfroma15%minimumtop-uptax.Carve-outs,provisionsthatdecreasethetaxbase forrealeconomicactivity,reducethepotentialtaxrevenuesbyapproximately14%to22%overtheentiresample.Underthecurrentagreement,the EuropeanUnioncanexpectatotaltaxrevenueofEUR55billionyearly.Theanalysisaccentuateshowthedistributionofrevenuesvariesdependingon whichcountryhastheprioritytocollect.UndertheIIRinwhichtheheadquarterscountrycollectsthetop-uptax,acountryreceivesmorerevenueswhenit hostsmoreheadquarteredmultinationals.Withqualifieddomestictop-uptaxesthatgivethehostcountryoftheforeignaffiliatetheprioritytocollectthe top-uptax,low-taxjurisdictionsthathaveattractedaffiliatesofmanymultinationalscouldbeamongthemainbeneficiariesofthereform.Static estimates thattakethedistributionofprofitsandtaxespaidasgiven,arepresented.Thereafterpossiblebehaviouraleffectsthatmayaffecttheestimatesarediscussed.
Keywords: Internationaltaxation,taxdeficit,globalminimumtax.
1INTRODUCTION
Globalizationhasaffordednewopportunitiesformultinational corporationstoreducetheirtax bills.Ascountriescompeteto attractinvestments,theymayhaveincentivestoreducetheir corporatetaxrates.Inaddition,multinationalcompaniescan recordearningsinjurisdictionswheretheycanminimizetheir taxbillwheretheyoftenemployasmallnumberofworkersand ownfewtangibleassetsbyshiftingpaperprofitstotaxhavens. Internationalcapitalmobility andprofitshiftinghaveledtoa substantialdeclineinthetaxeseffectivelypaidbymultinationalsglobally.Thisevolutionisunlikelytobesustainable, neitherpoliticallynoreconomically.
Multinationalshavepossibilitiestobooktheirprofitsinlowtaxcountries,butgovernments canchoosetotaxthoseoffshore profits.Since2019,theOrganizationforEconomic CooperationandDevelopment(OECD)hasbeenconsidering aminimumcorporatetaxrateformultinationalcompanies’ profits.InOctober2021,137countriesandjurisdictionsagreed
Notes
* EUTaxObservatory.Email:mona.barake@taxobservatory.eu.
** EUTaxObservatory.Email:paul-emmanuel.chouc@ip-paris.fr.
*** EUTaxObservatory&WorldInequalityLab.Email:theresa.neef@taxobservatory.eu.
ontheimplementationofa15%globalminimumtaxviathe OECD’sPillarTwoproposal.Thisagreementwasdetailedin theOECD’sModelRulesandtransposedintoadraftdirective bytheEuropeanCommissioninDecember2021.
Thisarticleestimateshowmuchcountriescouldcollect fromaglobalminimumtaxof15%onlargemultinationalcompanies’ profits.Twodifferentscenariosareconsidered.First,therevenuesarecollectedbythecountryin whichtheheadquartersofthemultinationalarelocated (inthefollowingreferredtoasheadquarterscountry) whichiscomparabletotheincomeinclusionrule(IIR) oftheOECD/G20agreement.Inasecondscenario,the hostcountrywheretheaffiliateofthemultinationalcompanyhasitstaxresidenceandprofitsarerecordedcollects theadditionaltaxrevenues.Thelattercasecorrespondsto thequalifieddomesticminimumtop-uptax(QDMTT) thatwasfirstintroducedintheOECD’sModelRulesof December2021underwhichtheQDMTThaspriority overtheIIR.Allresultsinthisstudyarefirst-round
**** UCBerkley&EUTaxObservatory.TheauthorswouldliketothanktheparticipantsintheWorldInequalityLabConference(2021)andtheHybridIntertax &Cideeff SeminaronPillarTwo(2022)fortheirhelpfulcommentsanddiscussions.TheyalsogratefullyacknowledgeGaspardRichardforexcellentresearchassistance.
effects,i.e.,beforebehaviouraladjustmentsofmultinationalsandtaxjurisdictionstothereform.
Thisstudyfindsthattheglobalrevenuepotentialofa 15%globalminimumtaxisapproximatelyEUR179billion.ThisnumberdecreasestoEUR139–165billionwhen substance-basedcarve-outsareintroducedanddependson theincomedeductionrates.FortheEU,therevenuesfrom PillarTwoareestimatedtobearoundEUR55billionunder theIIR.Thisamountstoalmost16%ofcorporatetax revenuesor4%ofthetotalhealthcareexpenditure.
Whetheritistheheadquarterscountrythatcollectsthetax revenues(undertheIIR)orthesourcecountry(underthe QDMTT)changesthegeographicaldistributionofrevenues amongcountries.Underthe ‘headquartersscenario’ ,acountry thathasmoreheadquarteredmultinationalsreceivesmore revenuesgeneratedbytheglobalminimumtaxespeciallyif themultinationalsareengagedinaggressivetaxplanning.In thesecondscenario,thehostcountrywheretheaffiliate operateswouldhavetheprioritytocollectthetop-uptax revenue.Inthiscontext,countriesthathaveattractedthe affiliatesoftax-aggressivemultinationalcompanieswould benefitthemostbeforebehaviouraladjustments.
Untilrecently,itwasdifficulttoestimatetherevenues fromaminimumtaxduetothelackofpubliclyavailable informationontheprofitsrecordedbycorporationsintax havens.1 Thishasbeguntochangeinrecentyearswiththe publicationoftwonewmacroeconomicdatasets:Thetabulationofmultinationalcompanies’ country-by-countryreports (CbCR)(publishedbytheOECD)andforeignaffiliatestatistics(FATS)(publishedbyEurostatintheEU,for instance).Thesenewdatagrantadditionalknowledge aboutthelocationofmultinationals’ profits(inparticular, howmuchisreportedintaxhavensglobally)andtoestimate theeffectivetaxratestowhichtheseprofitsaresubject.
Thisstudyaddstoabodyofliteraturethatestimatesthe revenuepotentialofaglobalminimumtax.Itiscloselyrelated toClausingetal.(2021)whoestimatehowmuchadditional revenuetheUnitedStatescouldcollectfromapplyinga21% minimumtaxontheundertaxedprofitsoftheirheadquartered multinationals.2 TheEconomicImpactAssessmentofthe OECD(2020)providesaglobalrevenueestimateofapproximatelyUSD150billion,asimilarapproximatecalculationas thatofthisarticle,withoutpresentingcountry-by-countryestimates.Devereuxetal.(2020)presentrevenuesestimatesfrom PillarTwofromtheIIR.Thisarticlecontributestothisdebate withcountry-by-countryrevenueestimatesoftheglobalminimumtaxagreedunderPillarTwo.Thisworkisprobablythe
firsttosimulaterevenuesofa minimumtaxbasedonthelatest agreementsofJulyandOctober2021aswellastheOECD’ s ModelRulesandtheEuropeanCommission’sdirectiveproposal ofDecember2021.Thisworkisalsobasedonthreereportsby Barakéetal.(2021).Theresultsarefurtherdiscussedinlightof thosestudiesintheresultssection.
Thisarticleisstructuredasfollows.Section2detailsthe PillarIIproposal,section3describestheunderlyingdata, andsection4continuesbyoutliningourmethodology. Section5providesrevenueestimatesforthescenariosoutlinedabove.Section6discussestheresultsconsideringprior studies,theincentiveeffectsofPillarTwo,theirpotential implicationsonrevenuegainestimates,andfurtherconsiderations.Section7concludes.Thisarticleissupplemented bytwoonlineappendices.OnlineAppendix13 provides moredetailsonmethodologyandrobustnesschecks. OnlineAppendix24 simulatesrevenueestimatesafterpossiblebehaviouraladjustmentsbymultinationalcompanies.
2THEPILLARTWOPROPOSAL
TheOECD/G20InclusiveFrameworkonBaseErosion andProfitShiftinghasproposedatwopillarsolutionto addressthetaxchallengesarisingfromthedigitalization oftheeconomy,i.e.,PillarOneandPillarTwo.The formerconsistsofthereallocationofresidualprofitsto jurisdictionsbasedonthemarketshareorenduserwhile thelatterintroducesaglobalminimumtax.Theirproposalseemstobeinitiallyintroducedasapackagetoaddress thedigitalizationoftheeconomy,however,eachiscurrentlybeingdiscussedseparately,especiallysincethe designofPillarOneisstillbeingdeveloped.
ThePillarTwoproposalconsistsofintroducingaminimumtop-uptaxof15%onundertaxedprofitsonacountryby-countrybasisineachjurisdictionwhereamultinationalis operating.UndertheIIR,theheadquarterscountryofa multinationalenterprise(MNE)willbeabletocollectrevenuesfromaffiliatesineachpartnercountrythathaveanETR lowerthan15%.WiththeintroductionoftheQDMTT,the priorityofcollectingtherevenuescanbeshiftedtothesource countryfromwheretheaffiliateoperates.Therearealsotwo rulesinthedesignofPillarTwo,i.e.,theunder-taxedpaymentrule(UTPR)andthesubjecttotaxrule(STTR).The UTPRfunctionsasabackupincasetheIRRisnotappliedby acountry,andtheSTTRappliesonsomeundertaxedpayments.Thisarticlewillfocusonthemainruleswhicharethe IRRandtheQDMTT.
Notes
1 Thisarticleconsidersthefollowingjurisdictionsastaxhavens:Andorra,Anguilla,AntiguaandBarbuda,Aruba,Bahamas,Bahrain,Barbados,Belgium,Belize,Bermuda, Bonaire,BritishVirginIslands,CaymanIslands,Curacao,Cyprus,Gibraltar,Grenada,Guernsey,HongKong,Ireland,Isleofman,Jersey,Lebanon, Liechtenstein, Luxembourg,Macau,Malta,MarshallIslands,Mauritius,Monaco,theNetherlands,Panama,PuertoRico,Seychelles,Singapore,SintMaarten,St.KittsandNevis,St.Lucia, StVincentandtheGrenadines,Switzerland,TurksandCaicos.ThiscorrespondstothelistestablishedbyThomasR.Tørsløv,LudvigS.Wier&GabrielZucman, The MissingProfitsofNations,NBERWorkingPaperSeries,No.24701(2018).
2 Seealso EmmanuelSaez&GabrielZucman, TheTriumphofInjustice – HowtheRichDodgeTaxesandHowtoMakeThemPay (NewYork,NY:WWNorton2020),Ch.6.
3 https://drive.google.com/file/d/13RBGWxUl0_sFKPnm3GOuaueU8Hlpyhp3/view
4 https://drive.google.com/file/d/1uzVAdAnNMhVGC0cW87rvqSVbPAKk9Hap/view
AnimportantaspectofthedesignofPillarTwoare carve-outs.Substance-basedcarve-outsallowforareductioninthetaxbaseinwhichthetop-uptaxwillapply.It willsubtract8%ofthecarryingvalueoftangibleassets and10%ofpayrolloremployeecompensationfromprofits.Inatransitionperiodoftenyears,theamountof excludedincomewillbedecliningtoreach5%oftangible assetsand5%ofpayroll.Theconceptbehindthesubstance-basedcarve-outsistoapplythetop-uptaxon affiliateswithnogenuineeconomicactivityandless extensivelyonaffiliateswitheconomicactivity.Thisarticlemodelsfirst-year(8%ofassetsand10%ofpayroll)and long-run(5%ofassets,5%ofpayroll)carve-outs.
TheseruleswillapplytoMNEswithanannualglobal turnoverofEUR750millionandabove.Governmententities,internationalorganizations,non-profitorganizations, pensionfunds,orinvestmentfundsthatareultimateparent entities(UPE)ofanMNEgrouporanyholdingvehicles usedbysuchentities,organizationsorfundsarenotsubject totheglobalanti-baseerosion(GloBE)modelrules.
Currently,thePillarTwoagreementhasnotyetbeen implementedinanycountry.IntheUnitedStates,the existenceofglobalintangiblelowtaxedincome(GILTI) wouldmeanthatitiseithergoingtobeadaptedinor goingtocoexistwithPillarTwo.Thelatterscenarioseems tobemoreprobable,andthetaxesfromtheGILTIwouldbe treatedascoveredtaxes.ThiswouldgivetheUnitedStates thepriorityforcollectingthetaxrevenuesofitsMNEswith respecttothesourcecountries.IntheEU,therehasbeenno progressontheproposeddirectiveimplementingtheglobal minimumtaxbecausethevetoofonemembercountryis sufficientforstoppingthedirective.
3DATA
OECD’sCbCRstatistics. Thebenchmarkdatasourceisthe tabulationsofmultinationalcorporations’ CbCRspublishedby theOECDforthefinancialyearsof2016and2017.This datasetprovidesaggregateinformationontheprofitsthat multinationalenterprisesrecordandthetaxesthattheypayin theirheadquarterscountryandinforeignjurisdictions. Currently,thirty-eightcountries providesuchinformationfor theirheadquarteredmultinationals.Allofthecomputationsare basedonthesubsampleofprofit-makingentitiesofthisdataset whichexcludestworeportingjurisdictions(PolandandLatvia). Thecalculationsusebothincomeyearstocomputeaverage effectivetaxratesandprofitsrecordedin2017toestimate potentialrevenue.5 TheOnlineAppendix,sectionB.1provides
someadditionalmethodologicalinsightsregardingthecomputationofaverageeffectivetaxrates,andFigureB.1.1plotsthe distributionofpre-taxprofitsacrosseffectivetaxratebrackets. Theavailabilityofcountry-by-countrydatamarksan importantmilestoneintheanalysisofglobalization.They arecurrentlytheonlysystematicsourceonthetaxeseffectivelypaidbymultinationalcompaniesineachofthecountriesfromwheretheyoperate.Thesedata,however,arestill intheirinfancyandsufferfromanumberoflimitations.In particular,inthefirstyearsofreporting,someprofitsare double-counted.Profitsassignedto ‘statelessentities’ (particularlysubstantialforUSmultinationals)areoftenalso countedelsewhere(eitherunderUSdomesticprofitsorina non-USjurisdiction).Thisissueisaddressedbyentirely omittingstatelessentities.Further,thedouble-countingof intra-firmdividendsinCbCRstatisticscaninflateprofits beforetaxandartificiallyreduceeffectivetaxratesasthese dividendsaregenerallysubjecttonoorlighttaxation(Horst andCuratolo,2020).WhenamultinationalfromCountryA ownsanaffiliateinCountryBthatitselfownsanaffiliatein CountryC,dividendspaidbyCtoBarenotconsideredpart ofB’srevenue,however,theyaresometimescountedaspart ofB’sprofit.Thisproblemappliesprimarilytodomestic observationsasintra-firmdividendsgenerallyaccruetothe headquarters.Thereisnowaytosystematicallyaddressthis issueatthisstage,butthedomesticpre-taxprofitsare adjustedtoexcludeintra-firmdividendswhenevertax administrationsprovidetherelevantinformation(thisis thecasefortheNetherlands,Sweden,andtheUnited Kingdom).6 Finally,possibleinconsistenciesforafewparent-partnerpairsindicatedbyexcessiveprofit-to-revenue marginsorlargefluctuationsinprofitsbetweenyearswere identified.7 Fortheseobservations,theproblematicobservationswerereplacedwithwhatisobservedforthesame parent-partnerpairintheotherpresumablynon-distorted financialyear,applyingnominalgrossdomesticproducts (GDP)growthratesforthesakeofcomparability.
Tørsløv,Wier,andZucman(2018,2019). Inthis article,theOECD’sCbCRdatawascomplementedwith estimatesbyTørsløv,Wier,andZucman(2018,2019)for theincomeyearsof2016and2017.Thedatasetdetails theamountofprofitthatmultinationalsrecordintax havens,brokendownbytheheadquarterscountry,the amountthatcompaniesreportthere,andtheireffective taxrate.TheseestimatesareobtainedbycombiningFATS fromwhichTørsløvetal.infertheamountofprofits reportedintaxhavensgloballyanddirectinvestment statisticsonanultimateownershipbasis.Fromthat,
Notes
5 Pleasenotethat2016and2017datawavesmightoverlap.The2016CbCRdataencompassesfiscalyearsthatbeganbetween01Jan.2016and01Jul.2016(and thusend between31Dec.2016and30Jun.2017).The2017datacomprisesfiscalyearsthatendbetween01Jan.2017and31Dec.2017(OECD, ImportantDisclaimerRegardingthe LimitationsoftheCountry-by-CountryReportStatists (2021),https://www.oecd.org/tax/tax-policy/anonymised-and-aggregated-cbcr-statistics-disclaimer.pdf).Thispartialoverlapshouldnotintroduceanybiassincethisdataisnotusedforregressionorotherpredictionmodels.Itmay,however,makethecomparisonoftheresultsforthetwofiscal yearsdifficult(see AppendixB.5forinstance).
6 Arule-of-thumbextrapolationofthisadjustmenttootherheadquarterscountriesisproposedintheOnlineAppendixB.4thataccompaniesthisstudy
7 ThisisthecasefortheBelgian2016and2017country-by-countrydataaswellasfortheSingaporean2017data.Formoredetails, see theOnlineAppendix.
theysubsequentlydeducetheheadquarterscountriesof theparentcompaniesthatrecordprofitsintaxhavens.8
Importantly,theresultingdatabaseisfreefromthe double-countingofforeignprofitsidentifiedbyBlouin &Robinson(2019)insomeofthestudiesthataimat estimatingthescaleofmultinationals’ profitshifting. Indeed,asameasureofcorporateprofitsinthedata maintainedbytheBureauofEconomicAnalysis(BEA), Tørsløvetal.donotusethe ‘netincome’ variablethat includesequityincomebutratherfocuson ‘profit-type return ’.Thelattervariableisobtainedfromtheformer withaseriesofadjustmentsthatnotablyexcludeequity incomeandisprovidedintheBEA’sValueAddedTables.
ThisdatasetismorecomprehensivethantheOECD’ s CbCRstatisticswhichallowsustoconsiderablyexpand theoriginalsampleofthirty-sixheadquarterscountriesto eighty-threejurisdictions.ForEUMemberStates,the databaseincludes,forinstance,estimatesoftheamount ofprofitsrecordedbyHungarianandPortuguesemultinationalcompaniesintaxhavens.Thisinformationis currentlyunavailableincountry-by-countrystatistics.
TheTørsløvetal.databaseandtheOECD’sCbCRstatistics aregenerallyconsistent.Bothindicatethatapproximately40% ofmultinationals’ foreignprofitsthatarerecordedoutsideof theirheadquarterslocationcountryarereportedintaxhavens. TheOECD’s2017CbCRstatisticsindicateatotalofUSD684 billionofprofitsaredocumentedintaxhavens;thisis40%of theamountofmultinationalprofitsallocatedinthesedata (USD1,716billion).Thisnumberisslightlylargerthanthat obtainedfromTørsløvetal.(2019)whofocusonprofits artificiallyshiftedtotaxhavensandestimatedashareof36%.
ORBIS. TheEuropeanCommission’sdirectiveproposalto implementPillarTwoinMemberStatesexpandstheminimumtaxliabilitybeyondmultinationalcompaniestopurely domesticenterpriseswithoutforeignsubsidiariesthatearn revenuesexceedingtheEUR750millionturnoverthreshold. Toestimaterevenuegainsfromthesepurelydomesticcompanies,theORBISdatabaseofBureauVanDijk(BvD)wasused. Itisbasedonpublicbusinessregistriesandcomprisesmicrodataoncompanies’ financialandoperatingmetricsaswellas ontheirdomesticandinternationalownershipstructure.9 One hundredandeightytwopurelydomesticcompaniesareidentifiedinEUMemberStatesoverthe2016–2021period.The identifiedfirmsarethosethathaveavailableconsolidated financialsandwhoseconsolidatedturnovermeetstheEUR
Notes
750millionthreshold.Duetomissingvalues,thetop-uptax liabilitiescanbecomputedforonly170ofthem. Auxiliarydatasources. Fourauxiliarydatasourcesare mobilizedinthisstudy.First,dataonthemeannominal monthlyearningsofemployeesfromtheInternational LabourOrganization(ILO,2021)toenricheachobservation withaproxyforannualpayrollexpenses.10 Second,statutory corporateincometaxratesusedtoimputemissingeffective taxratesaretakenfromKPMG’scorporatetaxratestable (2021).Third,exchangeratesaretakenfromthetimeseries oftheEuropeanCentralBank(2021).Fourth,theestimates areupgradedfromtheincomeyearof2017to2021basedon thenominalgrowthratesoftheEUandworldwideGDP observedintheWorldEconomicOutlookDatabase (InternationalMonetaryFund,October2021).
4METHODOLOGY
TheagreementontheglobalminimumtaxunderPillarTwo concretelyestablishedaminimumtaxrateof15%. MultinationalsthathaveaconsolidatedrevenueaboveEUR 750millioninatleasttwoofthelastfourfiscalyearsarein scope.Theglobalminimumtaxshouldapplytopretax profitsasreportedinthecompany’sfinancialaccountswith anumberofstandardizedadjustmentseliminatingcommon gapsbetweenaccountingandtaxableincome.Thistaxbase canbereducedbywhatisknownas substance-basedcarveouts thatamounttoapercentageofthecarryingvalueof tangibleassetsandpayrollexpensesthatthemultinational companyrecordsinthesubsidiarycountry.Overatransition periodoftenyears,carve-outrateswilldecreasefrom8%of thevalueoftangibleassetsand10%ofpayrolltoalong-run rateof5%onpayrollandtangibleassets.Thisprovision reducesthetop-uptaxliabilityincountrieswithsubstantial activitywhilethefulltop-uptaxof15%appliesincountries withnogenuineeconomicactivity.Thetaxliabilitywillbe globallydeterminedforeachmultinationalcompany. However,thedatabasethatisusedonlyprovidesaggregate informationattheheadquarterscountryptosubsidiary jurisdictionjlevel.Thetaxbaseisthuscomputedhere underlong-runcarve-outratesasfollows:
TaxBasepj =Profitspj – 5%(Payrollpj +TangibleAssetspj) [1]
Forwhich Profitspj indicatestheprofitsbeforetaxofthe subsidiariesofmultinationalsheadquarteredincountryp
8 Ingeneral,foreignaffiliatestatisticscontainsimilarinformationasthatofcountry-by-countryreportstatistics.AnotabledifferencebetweenbothdatasourcesisthatCbCR dataonlycomprisemultinationalenterpriseswithaglobalturnoverofEUR750millionandmorewhileforeignaffiliatestatisticsdonotapplysucha threshold.
9 Theempiricalliteratureoncorporatetaxplanninghasextensivelyusedthisdatabase,includingstudiesontherevenuepotentialoftheglobalminimumtax(MichaelP. Devereux,FrançoisBares,SarahClifford,JudithFreedman,IremGüçeri,MartinMcCarthy,MartinSimmler&JohnVella, TheOECDGlobalAnti-BaseErosionProposal (OxfordUniversityCentreforBusinessTaxation2020)),OECD, TaxChallengesArisingfromDigitalisation – EconomicImpactAssessment:InclusiveFrameworkonBEPS,OECD/ G20BaseErosionandProfitShiftingProject(Paris:OECDPublishing2020).
10 Sinceemployeesofmultinationalcompaniesarelikelytoearnabove-averagewages,thefinalpayrollestimatesareupgradedbya20%premium.Thisupgradefactorcanbecompared withthemultinationalwagepremiumestimatesidentifiedorgatheredbyFredrikHeyman,FredrikSjöholm&PatrikTingvall, IsThereReallyaForeignOwnershipWagePremium? EvidencefromMatchedEmployer-EmployeeData,73(2)J.Int’lEcon.355–376(2007),RitaAlmeida, TheLaborMarketEffectsofForeignOwnedFirms,72(1)J.Int’lEcon.75–96(2007),or KhadijaVanderStraaten,NiccolòPisani&AnsKolk, UnravelingtheMNEWagePremium,JournalofInternationalBusinessStudies(2020),SSRN,https://ssrn.com/abstract=3717151. Forinstance,thelatterfindawagepremiumassociatedwithworkingforamultinationalcompanyof32%usingmicro-leveldatafromover40,000employeesinthirteencountries.As theycontrolforvariablessuchaseducationorfirmsize,thisestimatemayevenbealowerboundforthe naïve upgradefactorthatisapplied.
operatinginpartnerjurisdictionj;similarly, Payrollpj denotes thepayrollexpensesofthosesubsidiariesinpartnerjurisdictionj,and TangibleAssetspj indicatesthecarryingvalueoftheir tangibleassets.Pretaxprofitsandthenumberofemployees aredrawndirectlyfromtheOECD’sCbCRdata.Tangible assetsarealsoavailable,however,thevariablecaninclude inventories(OECD,2020)thatwerefactoredoutfromthe tangibleassetscomponentofcarve-outsinpreviousversions oftherules.Noadjustmenthasbeenmade,butfurther guidanceonthisaspectmightmakeacorrectionnecessary. Inthatcase,theresultsdisplayedbelowwouldoverestimate theeffectofthesubstance-basedincomeexclusionand(toa lesserextent)understaterevenuegains.Forpayrollexpenses, theILO’smeanearningsdataweremobilized(see section2). SectionB.2oftheOnlineAppendixprovidesadditional practicalindicationsregarding theintegrationofsubstancebasedcarve-outs,andadiscussionregardingtheinclusionof inventoriesintheirtangibleassetscomponentinSectionB.6. IntheagreementsofJulyandOctober2021,theIIRisthe primarilytoolusedforrevenuecollection.Itallowstheheadquarterscountryofamultinationaltoapplytheminimum top-uptaxwhenitsaffiliatesencounteraneffectivetaxrate below15%.ThemodelrulesofDecember2021introduceda newcollectionmechanism.UndertheQDMTT,hostjurisdictions,i.e.,jurisdictionswheremultinationals’ foreignsubsidiariesrecord(undertaxed)profits,havethepriorityto collectthetaxrevenuesoverheadquarterscountries.
Inthesimulations,thefocusisontheIIRandtheQDMTT, andotheraspectsofthemodelrulesareabstracted:First,from theSTTRthatwouldhavepriorityovertheIIRandQDMTT; second,fromtheinteractionwithPillarOne;andthird,from thecollectionofrevenuesthroughtheUTPR.Multinationals’ andtaxjurisdictions’ behaviouralresponsesarealsoabstracted. Someofthebehaviouraleffectsthatcouldinfluencetherevenue gainsandtheirdistributionarediscussedinsection5.
Intheheadquartersscenario,i.e.,underthefullimplementationoftheIIR,taxrevenuesthatcanbecollectedby theheadquarterscountrypareestimatedasfollows:
Revenuep = ∑j J (15% – ETRpj)×TaxBasepj [2]
TaxBasepj isgivenbyequation(1)forthesubsidiariesof multinationalsheadquarteredinparentcountrypinpartner jurisdictionj; ETRpj istheaverageeffectivetaxratethat thosesubsidiariesencounter.11 Intheheadquartersscenario,
Notes
headquarterscountriesfullycollecttheadditionalrevenues fromtheglobalminimumtaxwhilesubsidiarycountriesdo notobtainanyextrarevenue.FollowingtheEuropean Commission’sdirectiveproposal,EUMemberStatesare assumedtoimposethetop-uptaxnotonlyonforeignlowtaxedprofitsbutalsoonthoserecordeddomestically.Stated otherwise,Equation[2]includescountrypintherighthand-sidesumifandonlyifpisanEUMemberState.
UnderthefullimplementationoftheQDMTT,partner jurisdictionsjwheresubsidiariesarelocatedwouldcollect thefullrevenuesfromtheminimumtax:
Revenuej = ∑p P (15% – ETRpj)×TaxBasepj [3]
Thenextsectionprovidesrevenueestimatesfortheimplementationofeachofthetwoscenariosoutlinedin Equations(2)and(3).Itislikely,however,thatsome butnotallhostcountrieswillimplementtheQDMTT whichwouldleadtoahybridcase.
CbCRstatisticsprovidedetailedinformationonprofits, taxespaidaswellasthenumberofemployeesandtheamount oftangibleassetsthatthesubsidiariesofmultinationalsheadquarteredincountryprecordin partnerjurisdictionj.Tørsløv etal.(2018,2019)onlyprovidesdataontheprofitsofthe subsidiariesofmultinationalsheadquarteredincountryp operatingintaxhavensandintheheadquarterscountry.To computerevenueestimatesasdetailedabove,severalassumptionshavebeenmade.First,a10% effectivetaxrateisassumed inallofthetaxhavens.Thisisaratherconservativeassumption.UsingthesametaxhavenclassificationasinTørsløv, Wier,andZucman(2018,2019),anaverageETRintax havensofapproximately5%isfound.12 Second,theminimum taxrevenuefromnon-havenjurisdictionsisimputedby assumingthattheratioofrevenuegainsfromtaxhavensto non-taxhavensobservedinCbCRdataappliestotheextended sample.Fordetailsontheimputations, see theOnline Appendix(AppendixB.3).
Duetothestructureanddetailoftheunderlyingdata,the estimatesmightleadtounder-andoverestimatingadditionalrevenues.Ontheonehand,thetabulatedOECD CbCRdatausedinthisstudydeliversdownward-biased revenueestimatesbecauseofheterogeneityineffectivetax rateswithineachcountrypair.Entitiespaying highcorporateincometaxesmaycompensateforthosein thescopeoftheminimumtaxwithinajurisdiction.13
11 Theeffectivetaxratewillbecalculatedonacountry-by-countrybasis.Thisavoidsundertaxedprofitsbeingblendedwithtaxespaidinhightaxcountries.Incometaxespaid aredividedbypretaxprofitsforeachparent-partnerjurisdictionpairtocomputetheeffectivetaxrates.Tostabilizeeffectivetaxrates,averagetaxratesoverthetwoavailable incomeyearsof2016and2017areused:
Withtheavailabledata,someadjustmentsincludedinthemodelrulesdefinitionof ‘adjustedcoveredtaxes’ cannotbemade,e.g.,noneoftheincometaxvariablesin country-by-countryreportstatisticsincludedeferredtaxesorcontrolledforeigncompany(CFC)taxpaymentscannotbeaccountedfor.
12 ThisETRof4.8%isaprofit-weightedaveragebasedon271parent-partnerobservationswherethepartnerisataxhavenfortheincomeyearof2017.TheETRsareaverage across2016and2017inordertostabilizethem.Outliersarewinsorized.Theunweightedaverageamountstoapproximately7%.Thus,theassumptionof 10%will probablyresultinalower-boundestimateforrevenuesfromtaxhavensinthedatabasebyTørsløv,Wier,andZucman(2018,2019).
13 Forexample,imaginethathalfofFrenchmultinationalshaveaneffectivetaxrateof20%(euro-weighted)inapartnercountry,andtheothershaveaneffectivetaxrateof 10%inthesamecountry.TheaverageeffectivetaxratereportedintabulatedstatisticsforFrenchmultinationalsinthiscountryis15%and,thus,theestimatedtop-uptax liabilityis0.Inreality,thetruerevenuegainispositivesincethemultinationalswithaless-than-15%effectivetaxratereportundertaxedprofits.
Ontheotherhand,therevenuegainestimatesin thisstudycanbebiasedupwardsviafivemain mechanisms.
First,thedouble-countingofintra-firmdividends inCbCRstatisticscaninflateprofitsbeforetaxand artificiallyreduceeffect ivetaxratesasdiscussed above.Thispotentialbiasiscorrectedwheneverthe requiredinformationisavailable( see section2). Second,therevenueeffectsofPillarOnearenot considered;however,theOECD ’ sEconomicImpact Assessment(2020)findsonlymarginaleffectsrelated toitsapplication.Third,newlymultinationalcompaniesforwhichthemodelrulesapplyexemptions, arenotdistinguishedinthedata.Further,the de minimis exclusioncanonlybepartiallymodeled. 14 Fourth,whilePillarTwowillonlyapplytomultinationalcompanieswithaglobalturnoverofEUR 750millionandabove,Tørsløvetal.(2018,2019) dataarenotrestrictedtomeetthiscriterion.This mightleadtotheinclusionofrevenuesfromsmaller companiesnotsubjecttoPillarTwo.Five,inthe ‘ headquartersscenario ’ (Equation2),thespecific treatmentofpartiallyownedentitiesundertheIIR aredisregarded. 15 Thefulltop-uptaxamountis systematicallyattributedtotheheadquarterslocation countryregardlessoftheownershipstructureofthe multinationalcompanies.Thissimplificationis imposedbytheaggregateCbCRdatathatismobilized.Itseffectontheestimatedaggregaterevenue gainsdependsonwhetherthetop-uptaxamountthat isattributabletominorityshareholdersandremains outsidethescopeoftheIIRiscollectedthroughthe UTPR( see Noked(2022)forafurtherdiscussion).If so,thecomputationsinthisstudydonotoverestimatethetotalrevenuestobecollectedfrompartially ownedentitiesbutcovert heeffectofboththeIIR andtheUTPR.Ifthisisnotthecase,thenthe aggregaterevenuegainestimatesforthefirstscenario includetop-uptaxesthatwillnotbecollected.The effectofthissimplificationshouldbelimited.The orderofmagnitudeoftheestimatesinthisstudy shouldnotbesystematicallybiasedineitherdirectionconsideringallofthosefactorsandtheirsignificancefortheresultingrevenueestimates.
Notes
5RESULTS
5.1 HeadquartersScenario:Full ImplementationoftheIIR
Therevenueeffectsofa15%globalminimumtaxarefirst presentedwithandwithoutcarve-outsascollectedbyheadquarterscountries.ThefullimplementationoftheIIR wouldentailthattheheadquarterscountryofthemultinationalcompanycollectsthedifferencewhentheaffiliateof amultinationalhasaneffectivetaxrateoflessthan15%. TherevenuesareexpressedinEURbillionasashareof projectedcorporatetaxrevenuesin2021(absentachange inthetaxlaw)andasashareofcurrenthealthspending.
ThefindingssuggestthattheEUwouldcollectapproximatelyEUR67billionfroma15%minimumtaxwithout carve-outs.Forcomparison,thisamountrepresentsaround 19%ofthecorporatetaxrevenuescurrentlyraisedintheEU and5%ofcurrenthealthcareexpenditures.16 Substantialrevenuegainsarealsoexpectedfortheotherheadquarters countriescoveredintheOECD ’ scountry-by-country statistics.UndertheIIR,countriesthatheadquarters manylargeprofit-shiftingMNEsareexpectedtodraw thelargestrevenuegains.ItisfoundthattheUnited Statesisbyfarthecountrythatwouldbenefitthemost underthisscenariowithestimatedrevenuesofabout EUR58billion.WesternEuro peancountriesalsoappear amongtheprimarybeneficiariesoftheglobalminimum tax.Inthisgroup,German ywouldcollectalmostEUR 13billionofadditionalrevenues,SpainaboutEUR5 billion,FranceEUR4billion,andItalyapproximately EUR3billion.Othernon-EUcountriesthatwouldcollectsignificanttaxdeficitrevenuesareCanada(EUR9 billion),Japan(EUR6billion),andtheUnitedKingdom (EUR7billion).Additionally,somelower-taxjurisdictionsthathaveattractedanumberofheadquartersover thelastdecadesareattributedsubstantialrevenuesfrom theminimumtax.Thisisthecaseinparticularfor Irelandcollectingmo rethanEUR12billion, LuxembourgreceivingEUR6billion,andSwitzerland withEUR3.5billionofadditionalrevenue.Poland wouldobtainmostofitsrevenuegains,almostEUR4 billion,fromtheundertaxedp rofitsbookeddomestically byitsmultinationals,asdiscussedinmoredetailbelow.
14 AccordingtoArt.5.5oftheOECD’sModelRules,ifanin-scopemultinationalcompanyreportssufficientlylowrevenueandprofitsinaspecificjurisdiction,itwouldbefreefromany top-up taxrelatedtothecorrespondingincome.Moreprecisely,fortheexemption toapply,theconstituententitymustrecordanaveragerevenuebelowEUR10millionandaverageprofitslessthan EUR1millionwiththeaveragebeingcomputedoverthelastthreeincomeyears.Astheyonlyprovideinformationatthecountrypairlevelandnotatthelevelofconstituententities,thedata arenotgranularenoughtoincorporatethe deminimis exclusion.Thetop-uptaxesarebroughttozeroforallofthecountrypairsthatdisplayaggregaterevenueandprofitsbelowtheirrespective threshold,however,thisaffectstheresultsonlymarginallyandthetabulationofcountry-by-countryreportstatisticsimpliesthattheimpactof theexclusionisunderestimated.
15 Considertheforeignaffiliateofamultinationalcompanywithataxbase(profitsbeforetaxnetofsubstance-basedcarve-outs)ofUSD1,000andaneffectivetaxrateof10%. Thetotalamountoftop-uptaxassociatedwithlow-taxedentityistherefore5%*USD1,000=USD50.Iftheaffiliateisfullyownedbytheheadofthemultinational group,theentireamountiscollectedbytheheadquarterscountryundertheIIR.However,ifthegroupheadonlyowns80%oftheshares,thetop-uptaxcollectedbythe headquarterscountrywillonlybe80%*USD50=USD40.The80%factorwouldcorrespondtothe ‘inclusionratio’ mentionedinthemodelrules.Theimplicationsof thisscenarioarefurtherdiscussedintheOnlineAppendixwithmorecontextandatentativeassessmentofthescaleoftheoverestimationinduced(see s.D).
16 TheOnlineAppendix,TableA.3.1presentsthebenchmarkrevenuegainestimatesexpressedasashareofthecorporateincometaxrevenuescurrentlycollectedandthe currenthealthcareexpenditures.
ParentCountryNoCarve-Out
Year1:8%ofTangibleAssets, 10%ofPayroll
AfterYear10:5%of TangibleAssets&Payroll
Austria3.11.72.3
Belgium4.03.03.4
Cyprus0.20.20.2
CzechRepublic0.10.00.1
Denmark1.81.41.6
Estonia0.10.10.1
Finland1.51.21.3
France4.03.33.6
Germany13.38.010.1
Greece2.21.51.7
Hungary0.60.30.4
Ireland12.611.111.7
Italy3.12.42.7
Latvia0.20.10.1
Luxembourg5.94.65.1
Malta0.10.10.1
Netherlands2.41.82.0
Poland3.82.02.7
Portugal0.10.00.0
Romania0.10.00.1
Slovakia0.00.00.0
Slovenia0.00.00.0
Spain5.32.63.6
Sweden2.72.02.3
EUtotal67.147.455.2
Changein%-29.3%-17.8%
Argentina0.10.10.1
Australia1.81.41.6
Bermuda1.31.11.2
Brazil1.51.31.4
ParentCountryNoCarve-Out
Year1:8%ofTangibleAssets, 10%ofPayroll
AfterYear10:5%of TangibleAssets&Payroll
Canada9.16.77.6
Chile0.00.00.0
China6.23.44.4
India0.60.40.4
Indonesia0.10.10.1
IsleofMan0.10.10.1
Japan6.04.85.2
Singapore0.70.50.6 SouthAfrica3.02.42.6 Switzerland3.53.03.2
UnitedKingdom7.05.15.9 UnitedStates58.152.154.4 OECD162.6127.8141.2
Changein%-21.4%-13.2% Fullsample179.1139.2154.5
Changein%-22.3%-13.7%
Thesubstance-basedincomeexclusionincludedinthe internationalagreementsofJulyandOctober2021andin theOECD’sModelRulessubstantiallyreducespotentialrevenues,asshowninTable1.Inatransitionperiodoftenyears, carve-outswilldecreasefrom8%ofthecarryingvalueof tangibleassetsand10%ofpayrollinthefirstyeartoalongrun,constantrateof5%onpayrollandassets.IntheEU,with thecarve-outratesofthefirstyearofimplementation,
estimatedrevenuegainsarereducedbyapproximately29% fromEUR67to47billion.Withfirst-yearcarve-outs,the estimateofEUR139billion(in2021)ofglobalrevenuegains fromtheminimumtaxisbroadlyinaccordancewiththeUSD 150billion(oraboutEUR127billion)estimateprovidedby theOECD.17 Withthelong-runcarve-outratesof5%for bothassetsandpayroll,revenuegainswoulddecreasefromthe initialEUR67billiontoEUR55billionintheEU.Thus,EU
Thistablepresentestimationsofrevenuegainsundertheheadquartersscenario.WhentheaffiliateofanMNEhasanETRbelow15%,theheadquarters countryoftheMNEcollectsthedifference.Resultsarepresentedwithoutcarve-outswithfirstyearcarve-outs(8%oftangibleassetsand10%ofpayroll) andlong-runcarve-outs(5%oftangibleassetsandpayroll).Thesampleisrestrictedtocountrieswithavailabledata. Notes
17 TheECB sUSD-EURmarketexchangeratefor2021of1.18274isusedforthisstudy.AccordingtothepressreleasethataccompaniedthejointstatementofOct.2021, theglobal minimumtaxagreement[ ]will see countriescollectaroundUSD150billioninnewrevenuesannually’.However,themethodologiesusedtoobtaintheresultsandthisfigure cannotbecomparedasthecontentoftheproposalhaschangedsubstantiallysincethereleaseoftheOECD sEconomicImpactAssessmentinOct.2020.
countrieswouldincreasetheirrevenuesbyalmostEUR55 billionor16%ofcurrentcorporateincometaxrevenueunder thebenchmarkestimationinthisstudy,a15%minimumtax rate,andlong-runcarve-outs.18
Theestimatedtaxrevenuesreflecthowmuchheadquarterscountriescancollectfromtheirmultinationals’ foreign affiliatesbutalsofromEUMemberStates’ domesticaffiliates.FortheEU,themajorityofadditionaltaxrevenuesare collectedfromforeignprofits.However,asubstantialpart oftotalrevenues,between20%and40%,comesfrom revenuesfromtheundertaxedprofitsofmultinationalcompaniesintheheadquarterscountry(forthe15%minimum taxwithlong-runcarve-outratesof5%).Thishighshareof domesticrevenuearisesfromasmallnumberofcountries includingGermany,Ireland,Luxembourg,andPoland. Furthercountry-specificreasonsfortheirhighdomestic revenuesarediscussedinAppendixB.4.Therevenue gainsfromEUmultinationals’ foreignaffiliatescanbe furtherbrokendownintotaxhavensandnon-havensfrom whichtheEUwouldgainaboutEUR11billion,andnonhavenpartnerjurisdictionswouldacquirealmostEUR23 billionofatotalofEUR55billionunderthebenchmark estimation,i.e.,approximately40%oftotalrevenue.19 The maincontributingjurisdictionstothesenon-havenrevenuesareAustraliawithEUR2.7billion,theUnited KingdomwithEUR7.7billion,theUnitedStateswith EUR4.6billionaswellassomeblendedjurisdictionssuch as ‘OtherEurope’ withEUR5.4billionand ‘Other Americas’ withEUR4.5billion.Foradetailedbreakdown byjurisdictiontype, see TableA.1.1intheOnline Appendix.
Severalcountrieshaveexpressedinterestinamoreambitiousglobalminimumtax.Thefindingssuggestthatrevenuesincreasemorethanproportionallywithanincreasein theminimumtaxrate.Witha21%minimumrate,the EuropeanUnionwouldhavecollectedapproximatelyEUR 118billionin2021(asopposedtoEUR55billionwitha 15%minimumtaxrate).Movingfrom21%to25%would increasetherevenuepotentialuptoEUR166billion.This non-linearitywasidentifiedbyDevereuxetal.(2020)in theirempiricalfindings.Astheyexplain,twoconcomitant effectsarerelevantwhentheminimumeffectivetaxrateis raised:Thetop-uptaxrateappliedtoprofitsalreadyin scopeincreases,andmoreprofitsareconsideredasundertaxedandtherebyfallinthescopeoftheglobalminimum tax.TableA.2.1intheOnlineAppendixdemonstrateshow varyingminimumtaxrateswouldaffecttherevenuegains.
TheOnlineAppendixoffersfurtherresultswithdifferentadjustmentstothebenchmarkestimatesinthisstudy. Specifically,inAppendixB.4theeffectofpossibledouble-countingofintra-firmdividendsonthestudy’sestimatesisdiscussed.Usingasimplerule-of-thumb adjustmentbasedoncountriesthatprovidecorrected profitaggregates,alloftheheadquarterscountryprofits uniformlydecreasebyabout40%.Withthisadjustment, theEuropeanUnionwouldstillgainapproximatelyEUR 42billionperyearfroma15%minimumtaxwith5% carve-outs.Particularly,Germanywouldhalfitsoverall revenuefromEUR10billiontoEUR5billionperyear. Theresultingrevenueestimatescanbeconsideredas lowerboundestimates.20
5.2 Headquartersv.SubsidiaryCountry Collection
ThemodelrulesofDecember2021introducedanew revenuecollectionmechanismwithQDMTTs.Under thelatestrules,thehostcountrywherethemultinational hasanundertaxedaffiliatewouldhavethepriorityto collectthePillarTwominimumtax.Therefore,acountry wouldcollectrevenuesifithasasubstantialnumberof affiliatestaxedataneffectiveratebelow15%.
Table2comparestherevenuescollectedundertheIIR (headquarterscountrycollection)withtherevenuesunder theQDMTT(subsidiarycountrycollects).Low-taxcountriesthathaveattractedmultinationalaffiliateswould gainthemostundertheQMDTT(beforebehavioural adjustments).LuxembourgcollectingaboutEUR12.5 billionandtheNetherlandsapproximatelyEUR14billionwouldaccountforalmosthalfofthetotalEUrevenues.Bermuda(EUR8billion),theCaymanIslands(EUR 11billion),PuertoRico(EUR5billion),Singapore(EUR 8billion),Switzerland(EUR8billion),andtheUnited Kingdom(EUR7billion)areamongthecountriesthat wouldcollectmosttaxrevenuesfromQDMTTs. However,itshouldbenotedthatthedistributionof revenuegainsestimatedinthissecondscenarioisprobablynotrobusttocompanies’ andjurisdictions’ responses totheminimumtax.Typically,asthe(closeto)15%floor reducesprofitshiftingincentives,thehighestimatefor theCaymanIslandsmightbeoverestimatedandshouldbe carefullyinterpreted.Potentialbehaviouralresponsesare reviewed,andtheirexpectedeffectsonrevenuegainsare analysedinsection5.
Notes
18 Allfollowingdiscussionsinthissubsectionarebasedonthisbenchmarkscenario.
19 Inthecategoryofnon-taxhavens,jurisdictionsareincludedthatarenotdeemedtaxhavensandalsoblendedjurisdictionssince,inCbCRdata,somepartnerjurisdictionsare onlyspecifiedas ‘OtherEurope’ or ‘OtherAmericas’.Additionally,severalparentjurisdictionsonlyhaveacontinentalsplitintoprofitsthatarerecordedandtaxespaidin Africa,theAmericas,Europe,etc.
20 See theOnlineAppendixforfurthercountryestimates.Thisisarule-of-thumbcorrectionthatcanbeconsideredasalowerbound.Sincetheguidelineswereambiguousin theinitialyearsofCbCreporting,somecountriesmightalreadyhaveexcludedintra-firmdividendswhileothershavenot.Itisassumedthatallcountriesdouble-count intra-firmdividendsintheadjustmentinthisstudy.
Incontrast,revenuescollectedbytheUnitedStateswould significantlyfallfromEUR54billiontoEUR3billion whenmovingfromtheheadquarterscollectiontothehost countrycollection.TheUnitedStatesindeedhoststheheadquartersofmanylargemultinationalsthatreportsizable
earningsinforeignlow-taxjurisdictionswhileprofits recordedintheUnitedStatesaregenerallytaxedatarate above15%.China,France,Germany,andJapanwheremultinationals’ affiliatesusuallyencountereffectivetaxrates higherthan15%wouldseetheirtaxdeficitshrinkaswell.
Table2Revenuesofa15%GlobalMinimumTaxWithCarve-Outsof5%onTangibleAssetsandPayrollUndertheIncome InclusionRule(HeadquartersCollection)andtheQualifiedDomesticTop-UpTax(HostCountryCollection)in2021EURBillion
ParentCountry
HeadquartersCountryCollection (IncomeInclusionRule) in2021EURbn
HostCountryCollection (QualifiedDomesticMin.Top-UpTax) in2021EURbn
ParentCountry
HeadquartersCountryCollection (IncomeInclusionRule) in2021EURbn
HostCountryCollection (QualifiedDomesticMin.Top-UpTax) in2021EURbn
ParentCountry
HeadquartersCountryCollection (IncomeInclusionRule) in2021EURbn
HostCountryCollection (QualifiedDomesticMin.Top-UpTax) in2021EURbn
ThistablepresentsestimationsofrevenuegainsundertheheadquartersandtheQMDTTscenarios.Undertheheadquartersscenario,itisthecountry wheretheMNEisheadquarteredthatcollectstop-uptaxeswhereastheyarecollectedbythehostcountryundertheQDMTT.Estimationsarepresented withlong-runcarve-outs.
*Itisassumedinthesimulationinthisstudythattheglobalrevenuesumisthesameunderbothscenarios.Pleasenotethatnotalljurisdictionsinthe samplewereincludedasthetablewouldbeunreasonable.Therefore,thesumishigherthanthatofindicatedcountry-specificrevenuesinthetable.Smaller differencesareduetorounding.
+ CbCRreportingcountrycomprisesallofthecountriesaboveexceptforCyprus,Czechia,Estonia,Hungary,Latvia,Malta,Poland,Portugal,and Slovakia.
Initially,revenueswouldbedistributedamongagreater numberofcountriesundertheQDMTTcomparedtothe IIRunderwhichrevenuesseemtobeconcentratedamonga fewcountries.Thatisbecausemostofthelargemultinationalsareheadquarteredinafewcountries,especiallyin developedeconomies,withtheUnitedStatesextremelyin thelead.Table3breaksdownglobalrevenuegainsbased oncountries’ levelofdevelopmentusingtheUNclassification.G7countriesalonewouldcollectapproximatelyEUR 90billionintheheadquartersscenariowhileitwouldfall toEUR17billionunderhostcountrycollection. Developingcountries’ gainsseemverylimitedunderthe IIR;withQMDTTs,theywouldexperienceanincreasein theirpotentialtaxrevenues.TheEUR155billiontotal wouldbedistributedamong190jurisdictionsandseven regionswiththeQMDTTcomparedwitheighty-three countrieswiththeheadquartersmethodology,basedon thecurrentsampleinthisstudy.
Thesecomparisons,andparticularlytherevenuegains underthehostcountryscenario,mustbeinterpretedwith theunderstandingthattheymaynotbecompletelyaccuratesincetheyrepresentpotentialrevenuebeforeany behaviouraladjustmentsbymultinationalcompaniesor governments.Itislikelythatmultinationalsallocateless
Notes
profitstolow-taxjurisdictionswhentheincentivemargin decreasesduetotheminimumtax.
Thistablepresentsthedistributionoftaxrevenuesby countryclassification.TheheadquartersandQMDTTscenariosarepresentedwithcarve-outsinthelong-run.The totalnumberofcountrieswiththehostcountryscenario includes190countriesandsevenaggregatedregions: Asia,OtherAsia,andOtherAfricathatareclassifiedas developingandAmerica,OtherAmerica,Europe,and OtherEuropethataredesignatedasdeveloped.
EntirelyDomesticCompanies. TheEuropean Commission’sdirectiveproposalextendsthescopeofthe minimumtaxtoinclude ‘large-scalepurelydomestic groups ’,i.e.,companieswithaconsolidatedturnoverof atleastEUR750millionbutwithoutanyforeignaffiliates.BasedonORBISdata,182EUpurelydomestic companiesareidentifiedforwhichconsolidatedfinancials existandwhichoftheirconsolidatedturnovermeetsthe 750millionEURthreshold(see Appendix4).Morethan 75%ofthesecompaniesareoperatinginGermany(63), Italy(42),France(20),andtheNetherlands(18). However,overallrevenuesfromthesearemarginalwith aroundEUR35million.21 Beyondthelimitednumberof firmssubjecttotheproposedextensionoftheminimum
21 Thisamountisbasedonthefinancialsof170large-scalepurelydomesticgroupsforwhichsufficientconsolidateddatacouldbeobtained.Theauthorsalsohavethe individualfinancialsoftheparentcompaniesofseventy-nineotherpurelydomesticgroups.Includingtheminthesampleyieldsoverallrevenuesof approximatelyEUR54
Table3Revenuesofa15%GlobalMinimumTaxWithCarve-Outsof5%onTangibleAssetsandPayrollbyCountryClassification UndertheIncomeInclusionRuleandtheQualifiedDomesticTop-UpTaxin2021EURBillion
HeadquartersScenario(IncomeInclusionRule)
HostCountryScenario(QualifiedDomesticTop-Up Tax)
ClassificationNumberofCountriesRevenuein2021EURbnNumberofCountriesRevenuein2021EURbn Developed34133.44195.5 ofwhichG7789.5717.4 Developing482110849.2 Intransition10.2130.1 Leastdeveloped00350.1 Undetermined---10.5 Total 83154.5197154.5
tax,twofactorsmayexplaintheselowrevenuegains. First,large-scalepurelydomesticgroupsencounterrelativelyhighmedianandmeaneffectivetaxratesof27% and25%,respectively,overthesample.Second,substance-basedcarve-outshaveasignificantimpacton thesefirmswiththelong-run(firstyear)carve-outrates wherebythetaxbaseisreducedby22%(38%)on average.
6DISCUSSION
6.1 EstimatesinLightofRelatedStudies
Theestimatesinthisstudycontributetoagrowing literatureontherevenueeffectsofaglobalminimum taxand,moreprecisely,PillarTwo.Inthissubsection, theresultsarerelatedwithpriorestimatesanddiscuss differencesinmethodsandresults.
TheOECD’s(2020)EconomicImpactAssessmentwas thefirstthatmodelledrevenuesfromPillarTwounder theIIR.TheyfindglobalrevenuesofUSD40to48 billionfora15%minimumtaxratewithoutcarve-outs beforeanybehaviouraladjustments.Thisismuchlower thantheglobalestimatesinthisstudy.However,dueto theuncertaintyofthecoexistencewiththeGILTI,their estimatesexcluderevenuesfromUSMNEsentirelyeven thoughitisthemainbeneficiarycountryundertheIIR. AdditionalrevenuesofEUR58billionareestimatedfor
Notes
theUnitedStatesinthisarticle.Furtherdifferencesmight arisefromslightlyvariousmethodologies,e.g.,incomputingtheETRs.
TheOECD(2021)providesanupdatedestimateina pressreleaseaccompanyingtheglobaltaxagreementof PillarTwo:Theagreedminimumtaxwilllikelygenerate additionalrevenuesofapproximatelyUSD150billion(or aboutEUR127billion).Thisisbroadlyinaccordance withthisstudy’sfullsampleestimates.AdditionalrevenueofEUR139billionEUR(in2021)isestimatedwith firstyearcarve-outs.22 Unfortunately,therevisedOECD (2021)estimatesarenotbrokendownintocountry-bycountryrevenuesfromPillarTwo.
Devereuxetal.(2020)estimatethepotentialrevenues fromaglobalminimumtaxonacountry-by-countrybasis usingthedatabasecompiledbyTørslov,Wier,and Zucman(2020).Theyassumea10%minimumeffective taxratewithoutcarve-outprovisionsandfindthatthis wouldgenerateadditionalrevenuesofaboutUSD32 billion(almostEUR34billion,constant2021)globally orabout1.7%ofworldwidecorporateincometaxrevenues.Theestimatesinthisstudyaresignificantlyhigher duetoseveralreasons.First,aminimumtaxrateof15% isassumed.Ahighertaxrateleadstoalargerscopeof MNEsfallingunderrevenuecollectionandincreasestax revenuesmorethanproportionally.Fora15%minimum rate,Devereuxetal.(2020)findadditionalrevenuesof approximatelyUSD57to69billionin2012(aboutEUR
million(+53%).Theseamountsshouldbeconsideredasindicativeoftheorderofmagnitudeofthepotentialrevenuegainsfromtheextensionratherthanveryrobust estimates. See s.CoftheOnlineAppendixforresultsthataremoredetailedandcommentsonthemethodology.
22 TheECB’sUSD-EURmarketexchangeratefor2021of1.18274.AccordingtothepressreleasethataccompaniedthejointstatementofOct.2021, ‘theglobal minimumtaxagreement[ ]will see countriescollectaroundUSD150billioninnewrevenuesannually .However,themethodologiesusedtoobtainthisstudy s resultsandthisfigurecannotbecomparedasthecontentoftheproposalhaschangedsubstantiallysincethereleaseoftheOECD’sEconomicImpactAssessmentin Oct.2020.
61to74billion,constant2021).23 Second,followingthe directiveproposaloftheEuropeanCommission,therevenuesdrawnbyEUMemberStatesfromtheunder-taxed profitsofdomesticsubsidiariesareincluded.This accountsforEUR28.4billion(constant2021)inthis study’sbenchmarkcomputationswithoutcarve-outs.24 Eventually,despitedifferencesintheestimatedamounts ofrevenuegains,comparableconclusionsaredrawn regardingthedistributionalconsequencesofPillarTwo. Inparticular,thelargesteconomiesareexpectedtodraw themostadditionaltaxrevenuesastheyhostnumerous largemultinationalcompanies.However,somesmaller low-taxjurisdictionsthathaveattractedmanyheadquartersalsobenefitsubstantiallyfromtheglobalminimum tax(especiallyHongKongandPanamainDevereuxetal. (2020)).
Thereareanumberofstudiesthatfocusonsome specificcountries.FortheUnitedStates,Clausingetal. (2021)estimatepossibletaxrevenuesfroma21%minimumtaxrateofUSD48billion(2021current)yearly basedoninternalrevenueservice(IRS)data.Itisdifferent fromthevaluefoundinthisarticleofaboutEUR89 billion(constant2021)yearly.Thedissimilaritiesmight bebecauseClausingetal.(2021)onlyattributetwo-thirds oftheirestimatedrevenuesofUSD61billiontothe UnitedStatesandaccountforreducedprofitshifting.
Laffitte etal. (2021) providemodel-basedrevenueestimatesforFrance,Germany,andtheUnitedStatesbased onabilateralbalanceofpaymentsandamodelthattakes intoaccountdirecttaxgainsfromthetop-uptax,indirect taxgainsduetoareductioninprofitshifting,andpossibletaxlossesduetorelocationofproductionsites.Fora globalminimumtaxof15%withoutcarve-outs,theyfind thatFrancecouldgenerateadditionalrevenuesofEUR6 billionannuallyintheshortrunwhichdecreasestoEUR 2billionafterbehaviouraladjustments.
ForGermany,theyfindrevenuesofEUR8billion annuallyintheshorttermandaboutEUR3billion aftermodelledbehaviouralresponses.Theorderofmagnitudeisapproximatelyinaccordancewiththeresultsin thisstudy.ForFrance,additionalrevenuesarefoundof EUR4billionannuallywithoutcarve-outsandEUR3.6 billionwithcarve-outs,bothslightlyloweramountsthat mightcomeaboutbecausetaxgainsfromrepatriated profitsarenotconsidered.ForGermany,ahigherrevenue
isestimated,ofEUR13billionannuallybeforecarve-outs andEUR10billionwithcarve-outs.Thisstudy’shigher estimatesmightarisefromtakingintoaccounttaxrevenuesfromundertaxedprofitsintheheadquarterscountry andnon-havensjurisdictionswhileLaffitteetal.(2021) focusonundertaxedprofitsinoffshorecentres.Revenues fromnon-havenjurisdictionsandrevenuesintheheadquarterscountryinthecaseofGermanyaresignificantin thisstudy’sestimations.Ingeneral,differencesinestimatesareexpectedhereduetothevariousdatasources anddifferentunderlyingmodels.25
Overall,thisstudy’sestimatesshowasimilarorderof magnitudetopriorstudies.Significantdifferencesinrevenueestimatesariseprimarilyduetothemodellingof differentestimatesoftheagreement.Specifically,revenue fromtheminimumtaxinEUheadquartersjurisdictions(as laidoutintheEUdirectivedraft),revenuesfromnon-tax havenswithlowETRs,andtaxhavensareincluded.Many relatedstudiesonlyestimaterevenuesfromoffshorecentres andtaxhavens.Thisworkismostprobablythefirstto providecountry-specificrevenueeffectsoftheglobalminimumtaxbasedontheOECD’sModelRulesandtheEU DirectivedraftofDecember2021includingtheIIRaswell astheQDMTTandthenegotiatedcarve-outprovisions.
6.2 ResultsinLightofFirms’ Behavioural Responses
Thefirst-roundestimatesoftherevenuegainsfroma globalminimumtaxbeforeanybehaviouraladjustments bymultinationalcompaniesorgovernmentsarepresented. However,theglobalminimumtaxislikelytoprofoundly affectagents’ incentiveswithconsequencesforthedistributionofprofitsorevenforcorporateincometaxsystems. First,theglobalminimumtaxwilllikelyreducethe intensityofmultinationalcompanies’ profitshifting. Manystudieshaveidentifiedhowlowertaxratesmake somejurisdictionsparticularlyattractiveformultinational companiesanddriveupwardstheamountofpre-taxprofitsrecordedthere.Severalstudieshavefoundasemielasticityofprofitswithrespecttotaxratedifferentials ofapproximately-0.8to-1(HeckemeyerandOveresch, 2017;Johansson,Skeie,SorbeandMenon,2017;Beeret al.2020;Dharmapala2014).Stateddifferently,aonepercentage-pointreductioninthetaxrateofajurisdiction
Notes
23 Forthisconversion,theECB smarketexchangerateisusedtoconvertUSDintoEURfor2012(1.2847887)andtheWorldEconomicOutlooknominalGDPgrowthratein EURbetween2012and2021(asmultiplier1.374317).
24 FurtherdiscrepanciesmightarisefromthefactthatDevereuxetal.’ s, supra n.7sampleincludesloss-makingandprofit-makingentitieswhiledatabaseinthisstudyis restrictedtothepositiveprofitssample.Additionally,Devereuxetal. s, supra n.7centralresultsarebasedon2012datawhilethecomputationsinthisstudyareon2017 dataandtheresultsaretransposedto2021accountingforinflationandfortheincreasesinmultinationalcompanies’ profits.
25 Twofurtherstudies,albeitwithaslightlydifferentsimulationtothisstudy,arethefirsttoestimaterevenuelossesofprofitshiftingusingmicroCbCrdata.Fuestetal. (2020)estimateaprofitshiftingmodelbasedontheGermanmicroCbCRdata.Theyfindthatpaperprofit-shiftingbyGermanMNEsaboveandbelowtheEUR 750 millionthresholdtotaxhavensinducedataxrevenuelossofEUR5.7billionyearly.BarbaraBratta,VeraSantomartino&PaoloAcciari, AssessingProfitShiftingUsing Country-by-CountryReports:ANon-linearResponsetoTaxRateDifferentials,DFWorkingpapers,11/2021(2021)useItalianCbCRdataandfindrevenuelosses(byusingthe differenceofthetaxpaidonprofitsshiftedtothecounterfactualoftaxationintheheadquarterscountry)ofEUR26billionforFrance,EUR6billion forGermany,andEUR 1billionforItaly.However,notethatthisaverydifferentsimulationtorevenuegainsundertheglobalminimumtax.
withrespecttootherjurisdictionsisassociatedwitha 0.8%to1%increaseinpretaxprofitsreportedbymultinationalsinthisjurisdiction.Moregenerally,thereisa strongerincentivetorecordprofitsinthedestinationof theshiftedincomewhenthereisasignificantdifferencein corporateincometaxratesbetweenthatcountryandthe countrywherethecompanyislocated.Moreover,Brattaet al.(2021)findthattheresponsetochangesintaxrate differentialsisnonlinearwithmuchhigherresponsesin taxhavens.Moreprecisely,theyfindthatprofitsbooked inalow-taxcountrywoulddecreasebyalmost6%(comparedto0.8%-1%above)ifthisjurisdictionincreasesits taxrateby1percentagepoint.A15%globalminimum taxthereforesubstantiallyreducesthecompany’sprofit shiftingincentive,inparticulartotaxhavens,bycurtailingthetaxratedifferential.Thisissueisdiscussedfurther andrevenueestimatesafterbehaviouraladjustmentsof firmswillbeprovidedinOnlineAppendix2. Pastestimatesoftheresponsesofpretaxprofitstotax ratedifferentials,however,maybelimitedtoanticipatethe reactionofmultinationalcompaniestoastructuralchange intheinternationaltaxsystemlikePillarTwo.Viaits GILTIprovision,theUSTaxCutandJobsActof2017 introducedaminimumtaxontheglobalprofitsofsome multinationalsforthefirsttime.Despiteverysignificant differenceswiththeGloBEproposal(e.g.,withrespectto theminimumeffectivetaxrate,theabsenceof ‘jurisdictionalblending’,orsubstance-basedincomeexclusions),the GILTIisprobablytheonlyprecedentavailabletostudy companies’ responsestoaglobalminimumtax.Analysing itseffects,Garcia-Bernardo,Janský,andZucman(2021) findthattheshareofforeignpretaxprofitsrecordedbyUS multinationalcompaniesintaxhavensremainedstable from2015to2020atapproximately50–60%.Overall, theeffectivetaxratefacedbyUSmultinationalsontheir foreignincomedidnotincreaseaftertheintroductionof theGILTI.Whiledifferencesbetweenthetworulesmake itimpossibletodrawanyassertiveconclusion,thisresult doesquestionthereductionintheintensityofmultinationals’ profitshiftingthatmaybeexpectedfromthe GloBEproposal.However,Clausing(2020)contendsthat, iftheGILTIwasonacountry-by-countrylevelasthe proposaloftheminimumtax,itwouldreduceprofitshiftingmoresubstantiallythanattheMNElevelwhereblendingbetweenincomefromlowandhighcountriescould eliminateGILTIpayments.
Ifmultinationalcompaniesrespondbyrepatriatinga partoftheirprofitsfromtaxhavenstohigher-tax
jurisdictions,thiswouldreducetheamountofundertaxed corporateincomeandthusaggregaterevenuegainsfrom theglobalminimumtax.Theeffectonthegeographical distributionofrevenues,however,isambiguousbecauseit dependsonwheremultinationalsredirecttheirprofitsand ontheheterogeneousintensityofprofitshiftingactivities acrossheadquarterscountries.26 UndertheIIR,thereductionofpotentialrevenuesmightalsooccurifMNEsmove theirheadquarterstoanothercountry.Thisdependson whethersomecountrieswouldofferincentivessuchastax credits.However,anumberofcountrieshaveanexisting penaltyfeeforMNEsthatwishtochangetheir headquarters.
Second,substance-basedcarve-outsalsoaffectthe incentivesofmultinationalcompaniesandtax jurisdictions.27 Indeed,carve-outsshieldpartofthe undertaxedprofitsfromtheglobal15%minimumtax inproportiontopayrollexpensesandtangibleassets. Profitscanbetaxedataneffectiveratesignificantly smallerthan15%evenafterPillarTwoapplieswithan adequateamountofgenuineeconomicactivityinajurisdictionandasufficientlyloweffectivetaxrate.To minimizetheirglobaltaxpayments,companiescould thereforeconcentrateboththeirpre-taxprofitsandtheir realeconomicactivity(i.e.,employeesandtangibleassets) inlow-taxjurisdictions.Governmentsmayalsohavea strongerincentivetoprovidepreferentialtaxtreatments tomultinationalcompaniesthatgeneraterealeconomic activityintheirterritoryviathedevelopmentofspecial low-taxeconomiczones,forinstance.Whilecarve-outsdo notimpacttheeffectivenessoftheglobalminimumtaxto curbpurepaperprofitshifting,theeffectontaxplanning practicesandinternationaltaxcompetitionismore ambiguous.Importantly,forthisstudy’sanalysis,behaviouralresponsesinvolvingthesubstance-basedincome exclusionmayaffectboththeaggregaterevenuegains fromtheglobalminimumtaxandtheirdistribution.
6.3 ResultsinLightofPossibleGovernments’ Responses
Third,theglobalminimumtaxcouldinducegovernments ’ responsesintermsofinvestmentattractingpolicies thatmightcounteractthereducedprofit-shiftingintensity.Intheirtheoreticalwork,Janeba&Schjelderup (2022)suggestthattheminimumtaxwouldreduceprofit shifting,however,thetaxmightincreasetheimportance ofattractingactualforeigninvestments.Thiswouldresult Notes
26 TheOECD’sEconomicImpactAssessment(OECD, TaxChallengesArisingfromDigitalisation – EconomicImpactAssessment:InclusiveFrameworkonBEPS,OECD/G20Base ErosionandProfitShiftingProject(Paris:OECDPublishing2020))ofOct.2020developedamethodologytotakeintoaccountareductionintheintensityofprofitshifting activitiesintheirrevenueestimatesforPillarTwo.
27 MichaelP.Devereux,JohnVella,MartinSimmler&HeydonWardell-Burrus, WhatIstheSubstance-BasedCarve-OutUnderPillar2?AndHowWillItAffectTaxCompetition?, Econ.Pol.Pol yBrief39(Nov.2021),ontheonehand,andJohannesBecker&JoachimEnglisch, GloBEMinimumTaxation:CalculatingtheLocalETRWithCarve-Outs, KluwerInternationalTaxBlog(2021),linkontheotherhaveengagedinamorethoroughdiscussionoftheexpectedeffectsofsubstance-basedcarve-outsoninternational corporateincometaxcompetition.Thisstudymainlyfocusesontheeffectsonrevenuegainsandtheirdistribution.
inintensifiedtaxcompetitionthroughpossibletaxcredits.Johannesen(2022)arguesthatthenetwelfareeffectof theminimumtaxwillonlybeunambiguouslypositiveif thepolicysucceedsineffectivelyendingprofitshifting.If itfailsthisgoal,itmightleadtoareallocationoffunds fromnon-havenfirmstotaxhavengovernmentsviathe increaseinequilibriumtaxratesintaxhavens.28
Further,themodelrulesreleasedbytheOECDin December2021introducedthepossibilityforhostcountriestocollectthetop-uptaxesviaQDMTTs.Thisgives thehostcountrythepriorityofcollectionovertheheadquarterscountry.Dependingonthedesignconstraints imposedonQDMTTs,thetotalrevenuescollectedby thatmeansmaydifferfromIIRrevenuegainsdueto partiallyownedentities(Noked,2022).Additionally,as emphasizedinthecomparisonofthetwoscenariosinthis study(section4),itwouldchangetheirdistribution.Two polarcasesarepresented – first,afullimplementationof theIIRwithoutanycollectionundertheQDMTTand, second,thecaseinwhichalljurisdictionsadopta QDMTT.Intheory,hostcountrieshaveastraightforward incentivetoimplementadomesticminimumtax,i.e., theywouldsimplycollecttop-uptaxesthatmultinational companiesarerequiredtopayundertheglobalminimum tax.29 Devereuxetal.(2022)goevenfurtherandcontend thatjurisdictionsareincentivizedtotaxmultinational companiessolelythroughtheQDMTTinacompetitive internationaltaxenvironment.Inpractice,however,a hybridcasebetweenbothpolarcasesismorelikelytobe implementeddependingontheadministrativecostof introducingtheseinstrumentsandthediscretionarydecisionsofgovernments.30 Aportionofmultinationals’ undertaxedprofitswouldbetaxedfirstbyhostcountries throughtheQDMTT.Thereafter,theIIRwouldbecome relevantwheneverQDMTTsdonotclosethegaptoa 15%effectiverate.Thiswouldgiveheadquarterscountriesthepossibilitytocollectpartoftheminimumtax revenue.Last,theUTPRwouldeventuallyapplyifthere isremainingincomethathasnotbeencollectedbythe hostortheheadquarterscountry.31
Fourth,somecountriesmightwanttoadoptthe QDMTTinordertocollecttherevenuesbutoffertax creditsatthesametimetopreservetheircompetitiveness. NotallcountrieswillimplementtheQDMTTbecauseit wouldeitherbeexpensiveforthemorbecausetheyarenot awareofit.However,thosewhodoimplementthe QDMTTbyraisingtheETRmightbeincentivizedto
introducesometaxcreditsinordertomaintainalevelof taxcompetition.Itshouldbenotedthatthe15%minimumtaxisstillalowertaxratethanthoseinmany countriesastheaveragecorporatestatutoryrateis approximately21%intheEU(KPMG2021).Thus, thereisapossibilitythattherearenomultinationals fromcountrieswitharatecloseto15%.Countrieswith verylowtaxrateswouldbemostlyaffectedunlessthey introducesomeotherincentives.Theeffectivenessof PillarTwomightbeweakenedbytheintroductionof suchformsoftaxcreditsbylowtaxjurisdictions.Since PillarTwoharmonizesthecorporatetaxrateamongthe differentcountries,somejurisdictionsmightintroducetax creditstooffsetthetopuptaxesthatanMNEmustpay. Thecountrythatintroducesthemtherebypreservesits fiscalcompetitionfeaturewithoutvisiblyhavingalowtax rate.Thismightleadtoataxcreditcompetitionamong countrieswhowouldliketocompeteoverattracting MNE’s.Incentivessuchastaxholidays,freetradezones, andlandandinfrastructurepaidforbygovernmentsto attractfirmswillbeattractivetosomecountriesinthe wakeoftheglobalminimumtaxaccordingtoJanebaand Schjelderup(2022).
ItshouldbenotedthattheOECDmodelrulesfurther differentiatebetween ‘qualifiedrefundabletaxcredits’ thatshallbetreatedasincomeinthecomputationof GloBEincomeand ‘non-qualifiedrefundabletaxcredits’ thataretreatedasareductiontocoveredtaxesinthe refundperiod.Theresultofthisisthattheuseofthe non-qualifiedtaxincentivesortaxcredits – becausethey reducecoveredtaxes – mayultimatelyreducetheETRof anentitybelow15%(FerreiraLiottietal.,2022).Inthat case,theUTPRcouldbeused,allowingothercountriesto collectthebenefitsofthetaxcreditsandincentives grantedbysomegovernments.
6.4 FurtherConsiderations
Fifth,thedistributionofrevenuegainsfromtheglobal minimumtaxwilldependonthetreatmentofUSmultinationalcompanies’ GILTItop-uptaxpayments.Themodel rulesdonotspecifytheconditionsofthecoexistencebetween PillarTwoandtheGILTI.OnepossibilityisthattheGILTI willbetreatedasanIIR.Inthiscase,thehostcountry collectionviaaQDMTTwouldhavepriorityoverthe GILTI,andpotentialrevenueswouldcorrespondtothe hostcountrycollectiondescribedinTable2.However,if
28 N.Johannesen, TheGlobalMinimumTax.In:JournalofPublicEconomics (2022forthcoming)onlytakesintoaccounttheIIR.
29 ThisideaisdevelopedfurtherintheOnlineAppendix.
30 Afewcountriesarealreadyexplicitlyconsideringtheintroductionofaqualifieddomestictop-uptax.Thisisthecase,forinstance,intheUnitedKingdom(HMTreasury, OECDPillar2 – ConsultationonImplementation (2022),openconsultationdocument,link)orSwitzerland(Conseilfederal, Rapportexplicatifrelatifàl’arrêtfédéralsurune impositionparticulièredesgrandsgroupesd’entreprises(Miseen œuvreduprojetconjointdel’OCDEetduG20surl’impositiondel’économienumérique) (2022),onlineaccesslink(reference availableinFrench,GermanandItalian)).SpecializedpressarticlesalsomentionHongKongorSingapore.Additionally,theUnitedArabEmirateshasannouncedthe introductionofanewcorporateincometaxsystemthatincludesa15%rateontheearningsofmultinationalcompaniesinthescopeofPillarTwo.
31 TheUTPRwasnotsimulatedinthisstudy.
taxespaidundertheGILTIareincludedinthe ‘adjusted coveredtaxes’ oftheGloBEproposal,thiswouldraisethe effectivetaxratescomputedforUSmultinationalcompanies andtherebyreduce – possiblydowntozeroiftheminimum effectivetaxrateretainedfortheGILTIissufficiently high – thetop-uptaxestobecollectedbyhostcountries undertheQDMTT.Revenuesfromtheundertaxedprofitsof USmultinationalcompanieswouldthenbecollectedbythe UnitedStatesregardlessofwhetherthehostjurisdictionhas introducedaQDMTT.Inthiscase,theestimatesforthefull implementationoftheQDMTT (Table2,rightcolumn)in whichallhostcountriescollecttheglobalminimumtax wouldseverelyunderestimatetherevenuegainsforthe UnitedStates.Therewouldalsobeanoverestimationof therevenuegainsforthejurisdictionswhereUSmultinationalcompaniesbookundertaxedprofits.Hence,theonly wayforthesourcecountrytoretaintheserevenueswouldbe toraiseitscorporateincometaxrate.
Last,itisworthmentioningthattherevenuesfromthe globalminimumtaxmightdecreaseifPillarOneis introducedalongwithPillarTwo.Thiswouldoccurdue tothefactthatsomerevenueswouldhavebeenredistributedaccordingtoPillarOneandthustaxedwhichwould raisetheETR.Thiswouldbelimitedtotheapproximately100largestandmostprofitableMNEsthatare inscopeofPillarOne,accordingtotheOECD.
7CONCLUSION
InOctober2021,137countriesandjurisdictionsagreedon theimplementationofamajorreformoftheinternational corporatetaxsystem,i.e.,aglobalminimumtaxof15%on largemultinationalcompanies’ income.Thisarticlepresentssimulationsoftherevenueeffectsoftheglobalminimumtax.Whiletheminimumtaxrateof15%andcarveoutratesareset,whocollectsthetaxseemstobemore ambiguous.Ontheonehand,theIIRgivesheadquarters countriestherighttotaxtheundertaxedaffiliatesoftheir multinationals;ontheotherhand,theQDMTTgivesthe prioritytohostjurisdictionstocollecttop-uptaxesfrom thesubsidiariesthatarerecordingprofitsintheirterritory. Thisarticlesimulatethefirst-roundrevenueeffectsofthe fullimplementationofbothrulesinastaticframework. Thegeographicaldistributionofrevenuegainsamong countriesheavilydependsonwhichjurisdictionisgranted thepriorityoraccesstoapplytheminimumtax.
Aglobalminimumtaxof15%,forwhichtheheadquarterscountrycollectstheadditionalrevenues,wouldgenerate aboutEUR67billionfortheEUandaroundEUR179 billionfortheeighty-threeparentcountriesinthisstudy’ s sample.Thisamountdecreasessubstantiallywiththecarveoutsestablishedinthemodelrules.Withthelong-run carve-outratesof5%forbothtangibleassetsandpayroll, EUrevenuegainswoulddecreasebyabout18%frominitiallyEUR67billiontoEUR55billion.Nontheless,thetotal revenuesofaglobalminimum taxwouldstillamounttoan increaseincurrentcorporateincometaxrevenuesofalmost
16%fortheEU.ThelargestbeneficiariesoftheIIRwould betheUnitedStatesthatwouldcollectextrarevenueof morethanEUR50billionandlargeEuropeancountries suchasGermanycollectingaboutEUR13billionorthe UnitedKingdomwithaboutEUR7billon.Addingtothat, somelow-taxjurisdictionsthathaveattractedanumberof headquartersoverthelastdecadeswouldgainsubstantial revenuesfromtheminimumtaxlike,forexample,Ireland withmorethanEUR12billionandLuxembourgwithEUR 6billion.UnderthefullimplementationoftheIIR,revenueswouldbeunequallydistributedacrosstheglobe. Developedandhigh-incomecountrieswouldgainmore extrarevenuesfromtheglobalminimumtaxthandevelopingandlow-incomecountries.
IfallcountriesimplementaQDMTT,revenueswould onlybecollectedincountrieswhereundertaxedaffiliates operate.Inthatcase,thepotentialrevenuesofmanylarge westerncountrieslikeFrance,Germany,andtheUnited Stateswouldsubstantiallydecrease.However,revenues wouldaccrueforapproximately197jurisdictionsinthe world.Inbothscenarios,theleastdevelopedcountries gainnoorverylimitedrevenues.
Alloftheestimatesinthisstudyarefirst-roundeffects beforethebehaviouralresponsesofmultinationalsorgovernments.Thesewouldparticularlyaffectthegeographical distributionofrevenues.Themagnitudeofbehavioural responsesisunknown.Whilestudiessuggestthatan increaseintaxationinlow-taxcountriescouldtriggera strongdecreaseinprofitsthatarerecordedinthosejurisdictions,theexampleoftheGILTI – theclosestattempt untilnowatasystematicminimumtaxationformultinationals – hasshownverylimitedeffectsontheeffective taxrateandprofitshiftingpatternsofmultinationals.
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