Papers & Reports

This Implementation Handbook on the minimum tax provides an overview of the key provisions of the rules and the considerations to be taken into account by tax policy and administration officials and other stakeholders in assessing their implementation options.

The Inclusive Framework’s Task Force on the Digital Economy (TFDE) has approved the publication of a text of the Multilateral Convention (MLC) to implement Amount A, together with its Explanatory Statement (ES) and the Understanding on the Application of Certainty for Amount A of Pillar One (UAC). This text reflects the consensus achieved so far among members on the technical architecture of Amount A, with different views on a handful of specific items noted in footnotes by a small number of jurisdictions who are constructively engaging to resolve differences.

The text of this Explanatory Statement to accompany the MLC was prepared to provide clarification of the approach taken in the MLC and how each provision is intended to apply. It therefore reflects the agreed understanding of the negotiators with respect to the MLC. It is intended by the negotiators to form part of the context of the MLC, as that term is used in customary international law, for the purpose of the interpretation of its terms.

Countries involved in the global tax deal negotiations have agreed on a multilateral convention to implement a rule aimed at helping developing countries collect more tax under treaties that set low withholding rates.

The rule, known as the subject-to-tax rule, will allow companies to tax certain intra-group payments where they are taxed below a 9% corporate income tax rate. 

The complexity of transfer pricing regulations is a severe challenge for tax authorities and MNEs. In the context of the OECD BEPS project policymakers and stakeholders had to navigate complex technical tradeoffs. For the Amount A reforms such complexities are largely attributable to the necessity of balancing opposing interest in a zero-sum game. Designing Amount B, however, does not constitute a zero-sum game. The mandate for Amount B, that is the application of the arm’s length principle for baseline distribution functions can only be attained when eliminating complexities. This paper discusses a risk management perspective to evaluate tradeoffs implied in determining the scope and thresholds for applying Amount B. The paper also illustrates that such an assessment framework to assess tradeoffs will address the needs of low-capacity jurisdictions and facilitate a positive outcome for taxpayers.

The author starts with the premise that multinational firms invest more and shift less profits out of countries with strong reputations, and study the correlation between this fact and lower corporate tax rates in these countries, finding an explanation in a government’s optimal taxation. They categorize governments into two types: commitment types and opportunistic types. According to this categorization, a commitment type of government commits to its tax rate; opportunistic governments may deviate from set rates after a firm’s investment. In the study, the author takes the government type as an unknown, and models the government reputation as a probability of a government falling into the commitment category. The model illustrates that firms maximize their expected profits based on a government’s reputation and shift profits once a government finalizes its tax rate in each period.

This paper investigates the association between the effectiveness of mutual agreement procedures provided for in bilateral tax treaties (MAP) and foreign direct investments by analyzing MAP statistics and distinct MAP components. Using firm-level ownership data, the authors find that MNEs invest more frequently in countries with good MAP policy structures and qualities (e.g., MAP components and fast dispute resolution). Vertically integrated MNEs and small parent MNEs most favor countries with several effective MAP components.

The article investigates the degree to which tax arbitration is associated with foreign direct investment. Using the staggered adoption of tax arbitration under tax treaties, the author finds that investments from developed OECD countries into developing host countries significantly increase following tax arbitration. The effect on developing host countries is driven by investments in middle-income developing. Overall, the provides novel evidence on investment response to tax arbitration.

The U.S. tax reform in 2017 introduced the Global Intangible Low-Taxed Income (GILTI) tax to discourage US multinational companies (MNCs) from shifting intangible income offshore. The reform simultaneously introduced the Foreign Derived Intangible Income (FDII) tax incentive to encourage companies to locate intangible income derived from export sales in the United States. This article examines whether these two tax initiatives affect the investment decisions of US R&D MNCs. The paper finds that these MNCs increase foreign tangible investments to minimize their GILTI tax burden but do not appear to decrease domestic tangible investments. The paper also observes that MNCs increase investments in both foreign and domestic human capital to maximize their FDII tax benefits. The paper further shows that FDII incentivizes MNCs to cultivate a new R&D workforce in the US as opposed to merely recruiting seasoned R&D personnel from other firms.

The OECD frequently lauds its Pillar 2 project as a cooperative global effort to ensure that large multinational enterprises pay a minimum tax regardless of where they are headquartered and regardless of the jurisdiction where their operations are located. At least 137 other nations have all agreed that global tax cooperation is consistent with their fiscal interests and their fiscal priorities. It is on these grounds that this paper attempts to identify the deficiencies and/or challenges of the Pillar 2 model rules and to propose necessary reforms to ensure that pillar 2 achieves the agreed-upon aspirational goals.