Global Minimum Tax Rate

Research Paper 164, 23 September 2022

Impact of a Minimum Tax Rate under the Pillar Two Solution on Small Island Developing States

By Kuldeep Sharma

The Research Paper commences with an overview of Pillar One and Pillar Two followed by detailed discussions on salient provisions of Pillar Two.

Pillar Two is envisaged to have a widespread impact on Small Island Developing States (SIDS) which are a distinct group of 38 United Nations (UN) Member States and 20 Non-UN Members/Associate Members of UN regional commissions that are exposed to unique social, economic and environmental vulnerabilities. In all, 36 SIDS that are members of the Group of Seventy-Seven (G-77) have been analysed, namely, Antigua and Barbuda, Bahamas, Bahrain, Barbados, Belize, Cabo Verde, Comoros, Cuba, Dominica, Dominican Republic, Fiji, Grenada, Guinea-Bissau, Guyana, Haiti, Jamaica, Kiribati, Maldives, Marshall Islands, Mauritius, Federated States of Micronesia, Nauru, Papua New Guinea, Samoa, São Tomé and Príncipe, Seychelles, Singapore, Solomon Islands, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Timor-Leste, Tonga, Trinidad and Tobago, and Vanuatu.

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Research Paper 161, 26 July 2022

Two Pillar Solution for Taxing the Digitalized Economy: Policy Implications and Guidance for the Global South

by Irene Ovonji-Odida, Veronica Grondona, Abdul Muheet Chowdhary

The taxation of the digitalized economy is the single most important topic in international tax negotiations today. The OECD has devised a “Two Pillar solution” to the problem. Pillar One is focusing on a reallocation of taxing rights to market jurisdictions, which are largely expected to be developing countries, and Pillar Two is instituting a global minimum tax. The Pillar One solution, known as Amount A, will be codified into a Multilateral Convention (MLC) and is expected to be placed before countries for signature in early 2023. The solution ushers in a new paradigm in the taxation of multinational enterprises but has immense complexity and likely minimal revenue gains for most developing countries. It will also require them to give up the right of unilateral tax measures on all out-of-scope companies, meaning they will only be able to tax the fewer than 100 companies likely to be in-scope, if at all. The decision to sign or not is thus a historic one, as it will lock developing countries into a constricted new framework, at a time when revenue needs are especially critical to recover the economies from COVID-19 in the context of a turbulent state of the global economy.

However, the United Nations too has a solution, known as Article 12B. This operates in a different manner and is a minor modification to the existing decentralized international tax system which is based on bilateral tax treaties, and which developing countries are more familiar with. It is also likely to generate far higher revenues than Amount A, and does not restrict any of their sovereign taxing rights. This Research Paper assesses the various implications for developing countries from adopting the OECD’s or the United Nations’s respective solutions and concludes with a possible global South response to the Two Pillar solution.

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SC Contribution – Comments on the Model Rules for the GloBE, 9 February 2022

Comments on the Model Rules for the GloBE

The BEPS Monitoring Group, 9 February 2022

The global minimum tax should provide an incentive for developing countries to raise their effective tax rate as close as possible to their statutory tax rates, which are often higher than the 15% rate. The average rate for South Centre and G-77+China Member States is around 25%. In any case it should be at least 15%, since any undertaxed profits would in any case be taxed at that rate by developed countries. Leading OECD countries have already adopted measures to protect their source tax base, which they intend to retain, such as the UK’s diverted profits tax and the US’s base erosion anti-abuse tax. Poorer countries have even more reason to do likewise. They should consider introducing or strengthening measures such as an alternative minimum tax on deemed or book profits, versions of which already exist in many countries. These are compatible with the GloBE rules, and should be regarded as an essential complement, to ensure that it contributes to both fair and effective taxation of MNE profits.

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CALL FOR PAPERS – Impact of a Minimum Tax Rate under the Pillar Two Solution on Small Island Developing States

CALL FOR PAPERS

Impact of a Minimum Tax Rate under the Pillar Two Solution on Small Island Developing States

Deadline: 15 March 2022

Pillar Two will end the race to the bottom in tax matters as allowed by the absence of a minimum global tax, likely affecting many financial services in some developing countries, removing the option for them to rely upon tax competition as an economic model. Hence, there is a need to understand how the Pillar Two rules are going to affect developing countries, particularly in small islands developing States where a large portion of their economies rely on tax-related financial services. It is necessary to consider development strategies aiming to deal with the potential disruptions and job losses posed by Pillar Two. These development strategies must provide pathways through which these countries can ensure employment opportunities to their people that require similar skill sets from some soon-to-be redundant segments of the financial industry. These can also highlight future financial sectors with potential where these countries can consider exploring/reorienting to benefit their economies.

Accordingly, this call for papers invites analysis on the effects of Pillar Two in Small Island Developing States that are Member States of the G-77+China. The proposals can either provide generalized suggestions for a whole set of countries or provide customized advisory for individual countries.

This call invites established scholars, early career academics, PhD students and practitioners (policy makers, tax officials, lawyers) across multiple disciplines to submit abstracts.

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Rapport sur les politiques en matière de coopération fiscale 23, 11 février 2022

Taux Minimum d’Impôt Mondial : Détaché des réalités des pays en développement

Par Sébastien Babou Diasso

Sous la direction des pays du G20 et de l’organisation de Coopération et de Développement Economique (OCDE), le Cadre Inclusif sur la réforme de la fiscalité internationale a adopté le 8 octobre 2021 une solution à deux piliers visant à résoudre les défis auxquels sont confrontés les pays dans le système fiscal actuel au niveau international. Cependant, le moins que l’on puisse dire, c’est que ces solutions n’apportent pas de réponses aux préoccupations de nombreux pays en développement, en particulier le taux d’impôt minimum de 15%, dans un contexte où la plupart des pays en développement membres de Centre Sud et du G-77+Chine ont déjà des taux effectifs bien au-dessus de ce minimum. Cette note vise à informer sur les niveaux actuels des taux d’imposition effectifs dans les pays en développement, pour lesquels les données sont disponibles, et à montrer pourquoi il ne serait pas pertinent de prendre en compte le taux minimum adopté dans le cadre inclusif. Mobiliser plus de ressources fiscales des entreprises multinationales est important pour les pays en développement pour la réalisation des Objectifs de Développement Durable. Nous recommandons donc que les pays en développement ignorent simplement le pilier deux et maintiennent leurs taux d’imposition actuels, ou les augmentent à des niveaux plus adaptés à travers l’application de mesures unilatérales plutôt que d’accepter d’être soumis à la procédure indiquée dans le pilier deux s’ils décident de l’appliquer.

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Tax Cooperation Policy Brief 23, 11 February 2022

Global Minimum Tax Rate: Detached from Developing Country Realities

By Sebastien Babou Diasso

Under the umbrella of the G20 and the OECD, the Inclusive Framework adopted on 8 October 2021 a two-pillar solution to address tax challenges arising from the digitalization of the economy. However, these solutions do not respond to the needs of many developing countries, in particular the global tax minimum rate of 15%, in a context where most developing countries, defined as Member States of the South Centre and the G-77+China, have an average effective tax rate higher than the adopted rate. This policy brief provides information of the current effective tax rates in some developing countries, and highlights why the minimum rate of 15% in Pillar Two is insufficient for them. Tax revenue mobilization is important for developing countries to achieve the sustainable development goals. It is thereby recommended that developing countries simply ignore Pillar Two and maintain their current higher rate or increase their rate to an appropriate level and enforce it through unilateral measures rather than the rule order under Pillar Two, which they will have to follow if they decide to implement it.

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