The Enforcement Dilemma of the Global Minimum Tax

Jean Hindriks () and Yukihiro Nishimura
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Jean Hindriks: Université catholique de Louvain, LIDAM/CORE, Belgium
Yukihiro Nishimura: Osaka University

No 2025003, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: To tackle profit shifting, the OECD/G20 Inclusive Framework proposes a Global Minimum Tax. The general presumption is that high-tax countries will gain and low-tax countries will lose because the minimum tax will reduce their inward profit shifting. Recent papers have shown that the minimum tax can be welfare improving for all countries even if the welfare of the firm owners are taken into account (Johannesen 2022, Hebous and Keen 2023). The purpose of this paper is to extent that analysis to endogenous enforcement choices. By means of a formal model of international tax competition with heterogeneous countries, we study explicitely how the minimum tax will change the dynamics of tax competition, profit allocation and enforcement incentives. We show that in this broader framework, there exists a critical threshold for the minimum tax beyond which the low-tax country will defect from international enforcement cooperation, making the high-tax country worse off. We also show that our analysis is robust to the presence of tax haven.

Keywords: Profit shifting; Tax competition; Tax enforcement (search for similar items in EconPapers)
JEL-codes: C72 F23 F68 H25 H87 (search for similar items in EconPapers)
Pages: 33
Date: 2025-01-20
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