The impact of the international tax reforms under Pillar One and Pillar Two on MNE’s investment costs

Tibor Hanappi and Ana Cinta González Cabral ()
Additional contact information
Ana Cinta González Cabral: OECD

International Tax and Public Finance, 2022, vol. 29, issue 6, No 6, 1495-1526

Abstract: Abstract Pillar One and Pillar Two would introduce new rules for the taxation of multinational enterprises (MNEs). This paper assesses the impact of these proposals on MNEs’ investment costs. The analytical framework extends the forward-looking effective tax rates (ETR) model of Devereux and Griffith (International Tax and Public Finance 10: 107–126, 2003) to consider the ETRs for an investment performed by an entity belonging to an MNE group accounting for the possibility that MNEs use their organisational structure to shift profits to low tax jurisdictions. The model incorporates a stylised version of the tax provisions proposed under Pillar One and Pillar Two. The results, covering over 70 jurisdictions, account for differences in tax bases and rates, and are empirically calibrated to map the global activities of in-scope MNEs. The global GDP-weighted average change in the EATRs from Pillar One and Pillar Two is estimated to be 0.4 percentage points, representing a small impact compared to the weighted average EATR in the sample (24%) as well as the 6 percentage point reduction observed in the period 1999–2017 across OECD countries. Overall, the analysis suggests that both Pillars would reinforce each other in lifting the floor of the ETR distribution, thus reducing tax rate differentials across jurisdictions.

Keywords: MNE; Investment; Profit shifting (search for similar items in EconPapers)
JEL-codes: F21 H25 H32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1007/s10797-022-09750-0 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:29:y:2022:i:6:d:10.1007_s10797-022-09750-0

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-022-09750-0

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().