The economics of the global minimum tax

Guttorm Schjelderup and Frank Stähler

International Tax and Public Finance, 2024, vol. 31, issue 4, No 1, 935-952

Abstract: Abstract This paper shows that OECD’s Pillar Two may increase employment and investment in low-tax countries due to the Substance-based Income Exclusion (SBIE). The SBIE allows to tax-deduct payroll costs and user costs of tangible assets twice from the tax base of the top-up tax owed by subsidiaries in low-tax countries. Consequently, it implies that a 15% minimum corporate tax for low-taxed subsidiaries is not achieved if the SBIE is positive. We show that Pillar Two dampens tax-motivated transfer pricing, but changes the employment, investment and import incentives, and that for a sufficiently large cost share of labor and/or capital, the SBIE is equivalent to a production subsidy.

Keywords: Corporate taxation; BEPS; Pillar two; Minimum tax (search for similar items in EconPapers)
JEL-codes: F23 F55 H25 H73 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Working Paper: The Economics of the Global Minimum Tax (2023)
Working Paper: The Economics of the Global Minimum Tax (2023)
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DOI: 10.1007/s10797-023-09794-w

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