Deciphering the GloBE in a Low-Tax Jurisdiction

Shafik Hebous, Cory Hillier and Andualem Mengistu

No 2024/064, IMF Working Papers from International Monetary Fund

Abstract: Pillar Two rules of the Inclusive Framework agreement on a minimum corporate tax (known as ‘Global Anti-Base Erosion Rules’, for short GloBE) have important implications for the design of the corporate income tax. This chapter discusses these implications particularly from the perspective of low-tax jurisdictions. It argues that it is not possible to design a system that always guarantees generating exactly the bare minimum tax intended by the rules and motivates that this should not be the policy objective anyway. Importantly, if no profit tax already exists, countries need to consider whether to adopt one, and if yes, in what form. There is a case for introducing a general profit tax beyond the GloBE rules, together with a qualifying GloBE domestic minimum top-up tax as a backstop. The familiar alternatives of efficient economic rent tax designs, however, are no longer equivalent under the GloBE. In practice, given the specifics of the rules, an efficient rent tax on in-scope multinationals cannot be combined with a statutory tax rate below a certain cutoff, because the minimum tax becomes always binding. Under the GloBE, immediate expensing particularly maintains the time-value of fully deducting the cost of investment, without impacting the GloBE effective tax rate.

Keywords: Investment; Minimum Tax; Tax Competition; Rent Taxation; Cash-Flow Tax; International Taxation; scope multinational; profit tax; top-up tax; tax design; Corporate income tax; Allowance for corporate equity; Corporate taxes; Tax allowances; Global (search for similar items in EconPapers)
Pages: 26
Date: 2024-03-22
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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