New report argues that the OECD’s Pillar 1 proposal is a better direction for reform
The Oxford University Centre for Business Taxation has published a report on the Organisation for Economic Co-operation and Development’s (OECD) proposal for minimum taxation of profit worldwide – Pillar 2 of its Global Anti-Base Erosion proposal. OECD’s 137-strong Inclusive Framework announced last week that Pillar 2 would be developed further, however the Centre for Business Taxation’s report demonstrates that this is the wrong direction to take.
The report finds:
- At a minimum tax rate worldwide of 10%, worldwide tax revenues from taxes on profit would rise by less than 2%
- This is $32 billion, 14% of taxes currently paid by foreign affiliates of all multinational companies, or 1/3 of 1% of total worldwide profit
- This estimate is based on a country-by-country approach to setting a minimum tax rate. If instead the minimum tax rate applies to each multinational (the “blended” approach), revenues would be even lower.
The report also questions the aims of the proposal, and its implementation.
- The proposal aims to combat tax avoidance by multinationals and to restrict tax competition. But these two aims require different approaches. The former should apply additional taxes only to profit shifted to low tax countries; the latter would need to apply to all profit.
- Additional tax would be levied in the country of the parent. But this would only be effective if almost all countries introduced the measure; otherwise parent companies could move to countries which did not do so.
- The measure would also require considerable harmonisation across countries in its implementation.
The report argues that the OECD’s Pillar 1 proposal – to extend rights to taxing profit to the market country in which sales are made – is a more promising direction for reform.
About the Oxford University Centre for Business Taxation
We are an independent research centre which aims to promote effective policies for the taxation of business.
The Centre undertakes and publishes multidisciplinary research into the aims, practice and consequences of taxes which affect business. Our analysis is independent of government, political party or any other vested interest.
We receive funding from various sources, including UK Research and Innovation, the British Academy and the European Research Network. In addition, we also receive funding from various donors.