Papers & Reports

This report provides an analysis of the existing arrangements in international tax cooperation, identifies additional options to make such cooperation fully inclusive and more effective, and outlines potential next steps. The findings of the report show that enhancing the role of the United Nations in tax-norm shaping and rule-setting, with full consideration of existing multilateral and international arrangements, appears the most viable path for making international tax cooperation fully inclusive and more effective.

This article examines a new concept on allocation of taxing rights in international taxation, the concept of location-specific rent, meaning a return to a factor of production that exceeds what the factor’s holder requires to deploy the factor to a particular location. A substantial quantity of location-specific rent likely exists. In theory, taxes on location-specific rent are difficult to avoid and are efficient. And, since location-specific rent can only be earned in one location, each location-specific rent seems to be made possible by one particular society. For that reason, it strikes many scholars as fair that each country should have the exclusive right to tax the location-specific rent that originates in it. The article clarifies what location-specific rent is; shows that it is not the holy grail of international taxation and identifies a modest role of location-specific rent in international tax policy.

This article introduces progressive formulary apportionment and urge that it be implemented within OECD’s Pillar One by establishing a new taxing right called “Amount D.” Unlike traditional formulary apportionment, in which the rights to tax businesses are allocated on the basis of the transactional attributes of the firm such as the firm’s payroll, assets, or sales, the progressive formulary apportionment allocates at least some taxing rights on the basis of states’ economic well-being, with worse-off countries receiving more valuable rights. The authors believe that the progressive formulary apportionment has desirable distributional and efficiency characteristics and that it could be implemented seamlessly within the emerging architecture under Pillar One. The implementation of Amount D will see some allocation to developing countries regardless of whether there is a nexus between the taxed firm and the taxing state.

This document sets out the second set of Administrative Guidance items released by the Inclusive Framework, following the first set of Administrative Guidance items that were published in February 2023. This second set includes guidance on currency conversion rules when performing GloBE calculations, on tax credits, and on the application of the Substance-based Income Exclusion (SBIE). It also includes further guidance on the design of Qualified Domestic Minimum Top-up Taxes (QDMTT) as well as two new safe harbours:

• A permanent safe harbour for jurisdictions that introduce a Qualified Domestic Minimum Top-up Tax (QDMTT), which will make compliance and administration easier for MNEs and tax administrations.
• A transitional safe harbour, which provides the UPE Jurisdiction with relief from the application of the UTPR for fiscal years commencing on or before the end of 2025.

This article examines whether U.S. effective tax rates on foreign income of U.S. multinationals (MNCs) vary according to the favorability of US macroeconomic conditions relative to those of non-US countries. The authors use the pre-Tax Cuts and Jobs Act of 2017 regime as the basis and present evidence that US effective tax rates on foreign earnings are higher in periods when macroeconomic conditions in the US are favorable relative to those elsewhere in the world and vice versa. These results imply that firms seek to maximize after-tax returns when making asset allocation decisions, even when faced with US repatriation tax costs. The paper also shows that economic uncertainty in the US counters positive effects of favorable US macroeconomic conditions on US effective tax rates on foreign earnings.

US criticizes Pillar 2 of the OECD project, particularly the impact of the UTPR on tax credits such as the ones included in the Inflation Reduction Act and the CHIPS Act. The author believes that those credits are unlikely to be affected because they are refundable. However, the articles raises the broader question of why the line between qualifying and non-qualifying credits should be drawn at refundability. The paper addresses this issue and argues that while refundability is a reasonable proxy, the line is intended to distinguish between tax expenditures that merely shift the location of investments that would be made somewhere and tax expenditures that address a market failure and, therefore would not be made but for the subsidy.

This article analyzes the legitimacy of the OECD’s work on Pillar Two. The starting point is the effectiveness of the new global minimum tax which is based on a so-called ‘devilish logic’. As such the project relies heavily on expert knowledge that is supposed to guarantee output legitimacy. At the same time, the consensus reached in the Inclusive Framework (IF) is supposed to bless the global minimum tax with a form of input legitimacy.  However, the author is of the view that that the legitimacy of the OECD’s work on Pillar Two is falling short. The central point is that the governance process of the OECD should meet burdensome standards of ‘good’ governance including accountability i.e. throughput legitimacy.

This article investigates the effects of a qualitative tax disclosure mandate aimed at improving the availability of tax information and tax compliance by imposing reputational costs for firms. The authors used a 2016 UK reform that required the disclosure of tax strategy details by large businesses. The authors find that firms that publish a tax strategy report significantly increase the volume of tax strategy disclosure in their annual reports. The article also highlights the important role that public pressure plays in facilitating the increase in disclosure volume.

This article addresses the effect of the closure of the Double Irish, a tax structure used by US multinational corporations to minimize tax. The author analyzes US corporate tax data and estimates that about  $59 billion in royalty payments has been shifted back to the US in 2020 after the closure of the Double Irish. The author further estimates that more than $609 million in royalty payments have been earned by US corporations operating the Double Irish scheme after it was fully closed.

The paper provides a policy response to the UN Resolution on Promotion of Inclusive and Effective Tax Cooperation. The response focuses on the role of the OECD and the Inclusive Framework, particularly the OECD two pillar approach as well as other interconnected policy issues in the context of global tax cooperation. This paper is not a technical analysis of specific international tax policy measures but a review with the aim of making recommendations that can enrich the future debate on international tax cooperation. In this regard, the paper recommends that the international community should consider a more flexible global tax cooperation system in which the individual interests of countries are considered as much as the global aims and where transparency in the drafting and decision-making processes becomes a priority.