Work

The economics of the global minimum tax

Year: 2023

Type: article

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.

Source: International Tax and Public Finance

DOI: 10.1007/s10797-023-09794-w

Authors: Guttorm Schjelderup, Frank Stähler

Institutions: Norwegian School of Economics, The University of Adelaide, University of Tübingen

Language: English

Topic: Corporate Taxation and Avoidance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $2,890