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Wednesday, January 26, 2022

Devereux Presents Enterprise Location Selections With A International Minimal Tax And Pillar 2 Right now At Toronto

Michael Devereux (Oxford) presents Enterprise Location Selections With A International Minimal Tax (with Francois Bares (Wisconsin) & Irem Guceri (Oxford; Google Scholar)) and Pillar 2: Rule Order, Incentives, and Tax Competitors (with John Vella (Oxford) & Heydon Wardell-Burrus (Oxford)) at Toronto at this time as a part of its James Hausman Tax Regulation and Coverage Workshop:

Devereux (2021)

Enterprise Location Selections With A International Minimal Tax
In an historic settlement in 2021, 141 international locations agreed on imposing a world minimal tax (GMT) on the earnings of multinational companies. Proponents of the GMT argue that the measure will scale back the distortion to companies location choices by lowering the dispersion in tax charges internationally. We examine the impression of the GMT on enterprise location and funding choices. To do that, we develop a location selection mannequin primarily based on efficient common tax charges (EATRs) augmented with incentives for profit-shifting to low-tax jurisdictions. GMT impacts the dispersion of EATRs for brand new funding in several international locations, however its impression is nonmonotonic within the threshold fee. For low values of the GMT threshold, the introduction of a minimal tax will increase EATRs extra in high-tax international locations relative to low tax international locations, rising the dispersion of EATRs. Because the statutory minimal fee will increase, extra low-tax international locations start to set their tax fee on the threshold, lowering the dispersion. An elevated threshold has heterogeneous value of capital results for various international locations; we discover {that a} excessive threshold fee could considerably depress capital accumulation in funding hubs. This evaluation offers a novel contribution to the literature on the connection between taxation and company choices on actual exercise.

Pillar 2: Rule Order, Incentives, and Tax Competitors
Two of probably the most controversial questions regarding Pillar 2 are the extent to which it’ll enable international locations to have interaction in tax competitors, and which international locations will gather the tax revenues it generates. The Mannequin Guidelines revealed by the OECD/G20 Inclusive Framework on 20 December 2021 present considerably sudden solutions to each questions.

This Coverage Transient focuses on two crucial parts of Pillar 2: the Substance-Primarily based Revenue Exclusion (SBIE) and the Certified Home Minimal Prime-up Tax (QDMTT). It makes three details. (i) The addition of the QDMTT successfully alters the rule order of Pillar 2, and thus its distributional penalties. (ii) Pillar 2 successfully creates a ground on “supply” nation tax competitors, nevertheless it does so in a roundabout method. Nations nonetheless have an incentive to compete by lowering the Company Tax legal responsibility they impose on corporations, maybe even right down to zero. Nonetheless, international locations now have an incentive to gather a QDMTT equal to fifteen% of Extra Revenue. (iii) Pillar 2 will increase the incentives for (at the very least some) international locations to cut back the Company Tax liabilities they impose on corporations, thus rising the likelihood that international locations scale back Company Tax liabilities maybe even all the way in which to zero. Importantly, nevertheless, as famous, these international locations have an incentive to impose a QDMTT. The substitution of Company Tax with the QDMTT can be a big growth and the creation of those incentives deserves cautious consideration.

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