The Digital Economy, Global Tax Reforms and Developing Countries – An Evaluation of Pillar I and Art. 12B UN Model
This paper evaluates the Multilateral Convention to implement Pillar I Amount A, released by the OECD in October 2023, and the alternative proposal of Art. 12B for tax treaties suggested by the UN, with a particular emphasis on the perspective of developing countries. It provides a comparative analysis of the proposals using an integrated economic and legal approach. The assessment is based on the two proposals’ ability to generate tax revenue and their implications for net-importing countries. The legal analysis demonstrates significant differences between the two proposals in the implied reallocation of taxing rights, depending on the considered (digital) business model. The paper contends that overall and despite its complexity, Pillar I Amount A addresses the specific interests of developing countries better than Art. 12B UN Model. In particular, Pillar I Amount A will likely outperform the UN’s proposal in terms of its tax revenue potential.
Heckemeyer, Jost and Heckemeyer, Jost and Schulz, Inga and Spengel, Christoph and Winter, Sarah, The Digital Economy, Global Tax Reforms and Developing Countries – An Evaluation of Pillar I and Art. 12B UN Model (March 28, 2024).
Broader Border Taxes: A New Option for European Union Budget Resources
The EU suffers from ‘tax leakage’ in which profits are shifted from high-tax to low-tax EU countries, and from there onto no or low-tax non-EU jurisdictions, often without the application of withholding taxes. So far, an opportunity for what could be seen as a tax at the border of the internal market, aiming to protect the market from harmful competition, may have been missed. Such a tax could reflect the undertaxed profit rule agreed as part of the international deal on the corporate minimum tax. Focusing on protecting the revenues of EU members by common tax borders could offer scope for new own resources.
Efficient Economic Rent Taxation Under a Global Minimum Corporate Tax
This IMF working paper highlights that the international agreement on a corporate minimum tax is a milestone in global corporate tax arrangements. The minimum tax disturbs the equivalence between otherwise equivalent forms of efficient economic rent taxation: cash-flow tax and allowance for corporate equity. This paper shows that the marginal effective tax rate initially declines as the statutory tax rate rises, reaching zero where the minimum tax is inapplicable and increases thereafter. The key insight is that a minimum tax, akin to Pillar Two, breaks the equivalence between cash-flow taxation and the allowance for corporate equity (ACE).
Shafik Hebous & Andualem Mengistu, Efficient Economic Rent Taxation Under a Global Minimum Corporate Tax, (IMF Working Paper No. 2024/057, 2024).
Promoting Inclusive and Effective Tax Cooperation at the United Nations
This technical report aims to provide a seminal analysis and strategic roadmap that aims to empower Africa to assert its voice and agency in shaping inclusive and transformative international tax cooperation and governance. It provides African policymakers and leaders with a nuanced blueprint to recalibrate international tax cooperation, underscoring principles of inclusivity, equity, and transparency. Through highlighting the urgency of addressing illicit financial flows and the disproportionate impact of global crises on developing nations, this report advocates for a globally inclusive, intergovernmental tax process at the UN that ensures equal representation and participation of all countries.
Case Law Trend: Withholding Taxation Under the Fundamental Freedoms
This paper analyses developments in the CJEU’s case law regarding withholding taxes and the constraints that fundamental freedoms impose on Member States in this area.
Ivan Lazarov, Case Law Trend: Withholding Taxation Under the Fundamental Freedoms, 51 Intertax 524 (2023).
Location, Financial and Real Effects of CFC Rules after the ATAD Implementation in the EU
This paper investigates the introduction of Controlled Foreign Company (CFC) rules by the Anti-Tax Avoidance Directive (ATAD) in the European Union. The authors study whether the implementation of CFC rules, in the context of the ATAD, alters the location, financial, and economic activity decisions of multinational enterprises (MNEs). The results reveal that the newly implemented CFC rules are only partly effective in reducing profit shifting. Instead, the overall number of CFC subsidiaries decreased, and the financial revenue of the persisting subsidiaries remained largely unchanged. The authors observed positive effects on the costs of employees assigned to a CFC subsidiary, suggesting that the economic activity exemptions introduced by the ATAD allow MNEs to circumvent the rules. This permits them to opt for a simple approach, enhancing economic activity in these locations.
Tax Transparency in Africa 2024: Africa Initiative Progress Report
This report provides concrete evidence of the impact of tax transparency in the fight against the scourge of illicit financial flows from Africa and demonstrates the huge potential offered by the implementation and use of this tool by African tax authorities for the sustainable strengthening of national revenue mobilisation by African countries.
2024 European Elections Manifesto: The Accountancy Profession’s Priorities for the EU Mandate 2024 - 2029
This report argues that the EU’s competitive advantage and its ability to sustain its social and economic model can only result from profound and structural changes. Accountancy Europe contends that sustainability practices lead to lasting competitive advantages such as better use of resources, increased availability of materials, revenue growth, and new employment creation, which underpin long-term value creation.
Background and Analysis of the Taxation of Multinational Enterprises and the Potential Reallocation of Taxing Rights Under the OECD’s Pillar One
The staff of the Joint Committee on Taxation describes legal and economic background relating to the taxation of income earned by multinational enterprises and the potential economic and revenue effects of Pillar One Amount A.
Business model digitalization, competition, and tax savings
The authors examine the effect of business model digitalization on competition and corporate tax savings. Global policymakers have expressed concern that digitalization-related tax savings unfairly benefit the competitive standing of rival firms over their competitors. This article argues that rivals’ adoption of a digital business model leads to negative economic effects on the performance of their non-digitalizing competitors. Contrary to policymakers’ concerns of digitalization-related tax savings unfairly shaping competition, the authors' findings suggest that tax savings from digitalization are not a key driver of altering competition between digitalized and non-digitalized firms.
Elisa Casi, Petro Lisowsky, Barbara Stage, & Maximilian Todtenhaupt, Business model digitalization, competition, and tax savings (TRR 266 Acct. for Transparency Working Paper Series No. 142, 2024).