‘Investment hub’ jurisdictions will benefit most from global minimum tax on MNEs, says OECD

The organisation says the Pillar Two tax will reduce global low-taxed profit from 36 per cent of all profit globally to about 7 per cent, after reductions in profit-shifting behaviour and the application of top-up taxes are both taken into account. This amounts to a decrease of about 80 per cent. The remaining low-tax profit mainly reflects the impact of the substance-based income exclusion, which affects all income groups but is largely concentrated in investment hubs.

The global minimum tax is expected to cut profit-shifting by half because of the strongly reduced incentive for MNEs to do so. The OECD predicts that global corporate income tax revenues will increase by USD155–192 billion globally each year as a result of the minimum tax. This represents 6.5 to 8.1 per cent of global corporation tax revenues, with one-third of these gains coming from reduced profit-shifting.

The broad spread of revenue gains across jurisdictions stems from a finding that there is still substantial low-taxed profit in high-tax jurisdictions, mainly due to special tax incentives such as tax holidays and patent boxes. This conclusion has emerged from analysis of country-by-country financial reports.

Countries set to benefit will include Bermuda, the British Virgin Islands, Guernsey, Ireland, Jersey Luxembourg, the Netherlands, Singapore and Switzerland. However, the OECD notes that differences in taxation between jurisdictions are expected to decrease.

Moreover, the OECD points out that revenue gains of individual jurisdictions will depend on their implementation decisions. Those not implementing the rules will forego revenues that would otherwise accrue to them, it says, although at the same time acknowledging that 'there is a high degree of uncertainty over the scale of these gains'.

Sources

• CFE Tax Advisers Europe
• OECD
• OECD (presentation, PDF)