A Regulatory Tax Hike on U.S. Multinationals March 3, 2022 While much of the policy focus has been on proposals embedded in the Build Back Better agenda, a meaningful tax hike for multinational companies has already been adopted.
The Global Minimum Tax Changes the Game for Build Back Better Revenue March 1, 2022 One goal for the Build Back Better Act has been to increase the amount of revenue the U.S. raises from U.S. companies at home or abroad. With the global minimum tax rules in play, it is likely that the expected gains to the U.S. Treasury from foreign profits of U.S. companies will diminish.
Rushing Headlong into Formulary Apportionment February 28, 2022 Complex tax policies that work well “in theory” can often have a hard time when the rubber meets the road. One instance of this is the challenge that the OECD has created for itself with the global tax deal, also fondly known as Pillar 1 and Pillar 2.
Case Study: Global Tax Deal February 15, 2022 The Global Tax Deal is a significant shift in international tax rules. The OECD’s plan aims to reduce incentives for tax planning and avoidance by U.S. and foreign multinational companies by limiting tax competition and changing where companies pay taxes.
U.S. Tax Incentives Could be Caught in the Global Minimum Tax Crossfire January 28, 2022 The current prospect for the global minimum tax requires the attention of U.S. lawmakers. Otherwise, a tax benefit at home will just mean a tax increase abroad.
Gift or Lump of Coal: U.S. Cross-border Tax Changes Won’t Be Home for Christmas December 20, 2021 As 2021 comes to a close, countries are moving toward harmonizing tax rules for multinationals, but stalled talks on the Build Back Better Act in the United States means new uncertainties for a global agreement and for taxpayers.
What Do Global Minimum Tax Rules Mean for Corporate Tax Policies? December 20, 2021 The new OECD global minimum tax rules are complex, and some countries may opt to put them in place on top of preexisting rules for taxing multinational companies. However, countries should also consider ways to reform their existing rules in response to the minimum tax.
What’s Next for Tax Competition? October 28, 2021 The rules of tax competition are changing with the recent agreement on a global minimum tax and other changes to tax rules around the world, but that does not mean the contest is over.
Choose Your Own Adventure: Global Minimum Tax Edition September 27, 2021 Over the course of the last year, it has become clear that Democratic lawmakers want to change U.S. international tax rules. However, as proposals have surfaced in recent weeks, there are clear divides among various proposals.
Tax Foundation Response to Ireland Department of Finance Consultation Document: Consultation on OECD International Tax Proposals September 8, 2021 The recent effort to change international tax rules has been one of significant contradictions. The proposals have been driven by arguments about the need to raise additional revenues, to stabilize corporate tax rates, or to prevent offshoring. However, upon closer examination, these three arguments fail to capture what is occurring.
International Tax Proposals and Profit Shifting August 24, 2021 There are many ways the U.S.’s international tax rules could be changed, reformed, improved, or worsened. Reflexively jacking up taxes on U.S. multinationals does not necessarily accomplish the goal of reducing or eliminating profit shifting, and it would in fact worsen it.
Adoption of Global Minimum Tax Could Raise U.S. Revenue…or Not August 19, 2021 This interaction between the U.S. proposals and those that may be put into law in foreign jurisdictions should give lawmakers caution when evaluating the revenue potential of changes to GILTI.
Options for Reforming the Taxation of U.S. Multinationals August 12, 2021 The Biden administration’s international tax proposals would impose a 7.7 percent surtax on the foreign profits of U.S. multinationals, resulting in a net increase in profit shifting out of the U.S.
Insights from the UN World Investment Report for Global Tax Reform July 8, 2021 The United Nations (UN) recently released its annual “World Investment Report,” which shows the dramatic fall in global foreign direct investment (FDI) caused by the COVID-19 crisis.
CFC Rules in Europe July 8, 2021 To prevent businesses from minimizing their tax liability by taking advantage of cross-country differences, countries have implemented various anti-tax avoidance measures, such as the so-called Controlled Foreign Corporation (CFC) rules.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries July 7, 2021 From a policy perspective it is appropriate to combat base erosion and profit shifting, but policymakers need to keep in mind the need for simplicity to avoid increasing the compliance burden on taxpayers and administrative burdens on tax authorities.
What’s in the New Global Tax Agreement? April 7, 2022 The agreement represents a major change for tax competition, and many countries will be rethinking their tax policies for multinationals in light of it. However, with both the U.S. and EU hitting roadblocks in their respective legislative processes, it is unclear when or even if the agreement will be implemented. If implementation fails, a return to a world of distortive European digital services taxes and retaliatory American tariffs could be on the horizon.
Which Global Minimum Tax Will We Get? April 8, 2022 Over the course of the last year, it has become clear that Democratic lawmakers want to change U.S. international tax rules. However, as proposals have been debated in recent months, there are clear divides between U.S. proposals and the global minimum tax rules.
What We Know: Reviewing the Academic Literature on Profit Shifting June 22, 2021 Lawmakers around the world are considering substantial changes to international tax rules to address tax avoidance. Many changes have already been made in recent years, with early economic evidence indicating that they may not only address tax avoidance but also impact business hiring and investment decisions.
New Research Shows Major Changes for U.S. Companies Earning Profits from Ireland June 16, 2021 New data show that the recent policy changes that have been implemented by the U.S., Ireland, and dozens of other countries are having an impact. The question for policymakers is whether they will take the time to understand these impacts before jumping to the next project to change international tax rules yet again.
Carve-ins and Carve-outs: Open Questions for Global Tax Reform June 11, 2021 There has been some confusion about how some parts of the recent G7 agreement on new tax rules for multinational companies might work. The new policies would target the largest and most profitable multinationals and bring in a global minimum tax.
A Global Minimum Tax and Cross-Border Investment: Risks & Solutions June 17, 2021 Leaders around the world are quickly moving to finalize an agreement on a global minimum tax in 2021, based on the so-called “Pillar Two” proposal from the OECD.
Two Important Issues that Must Be Resolved in “Global Tax Reform” May 25, 2021 If the U.S. is suggesting a 15 percent effective rate as the minimum acceptable rate for a global agreement, then the tax bases of the various minimum taxes adopted as part of the agreement should be aligned to minimize complexities and unintended consequences.
Recent Analysis Explores Pillar 1 Risks and the Potential for Disputes May 10, 2021 As countries move closer to agreement on how the OECD Pillar 1 Amount A will work and which companies will be impacted by it, it is incredibly important for policymakers to continue to evaluate not just the intended effects but also the potential unintended consequences.
Treasury’s Latest Pillar 1 Proposal: A Strategy to Split the Riches or Give Away the Store? April 14, 2021 New international tax rules on super-profits would disproportionately impact U.S. companies however they are designed. The question that Treasury should answer is why limit the policy in such a way that magnifies that disproportionate application and the risk to the U.S. tax base.
Can GILTI and the GloBE be Harmonized in a Biden Administration? March 4, 2021 While there are several parts of the policy that are subject to further discussion and agreement, GloBE is expected to be different from GILTI in several ways.
U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI February 17, 2021 The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.
Day 2 of OECD Consultation on International Tax Reform Blueprints January 15, 2021 The OECD consultation is in the context of the Inclusive Framework on Base Erosion and Profit Shifting which is made up of delegates from more than 135 countries and is focused on policies that reduce opportunities for tax avoidance by multinational companies. The current proposals being considered would change both where and how much companies pay in corporate taxes.
Day 1 of OECD Consultation on International Tax Reform Blueprints January 14, 2021 The first session was focused on Pillar 1 of the OECD proposal. The pieces in Pillar 1 would change tax rules so that companies would be paying more taxes in countries based on the location of customers. This approach would move more tax revenues into so-called “market countries.”
Tax Foundation Response to OECD Public Consultation Document: Reports on the Pillar One and Pillar Two Blueprints December 14, 2020 The Tax Foundation response to the OECD public consultation document on the reports on the OECD Pillar 1 and OECD Pillar 2 blueprints.
Two Roads Diverge in the OECD’s Impact Assessment October 20, 2020 The difference that the OECD presents between the potential impact in the context of agreement compared to a harmful tax and trade war should show policymakers the value of continuing multilateral discussions.
Pillars, Blueprints, an Impact Assessment, and Construction Delays October 13, 2020 The OECD released blueprints for proposals on changing international tax rules alongside an impact assessment based on the overall design of the proposals. While the blueprints cover proposals both for changing where large multinationals owe corporate tax and designing a global minimum tax, there are still many unanswered questions. In the meantime, other digital tax proposals are moving forward and have the potential to result in a harmful tax and trade war.
Thin-Cap Rules in Europe August 27, 2020 To discourage a certain form of international debt shifting, many countries have implemented so-called thin-capitalization rules (thin-cap rules), which limit the amount of interest a multinational business can deduct for tax purposes.
CFC Rules in Europe August 20, 2020 To prevent businesses from minimizing their tax liability by taking advantage of cross-country differences in taxation, countries have implemented various anti-tax avoidance measures, one known as Controlled Foreign Corporation (CFC) rules.
Where Should the Money Come From? August 12, 2020 The fiscal response to the COVID-19 pandemic will require policymakers to consider what revenue resources should be used to fill budget gaps. Tax policy experts have proposed wealth taxes, (global) corporate minimum taxes, excess profits taxes, and digital taxes as opportunities for governments to raise new revenues.
Decades in Corporate Taxation July 8, 2020 Corporate taxation has evolved significantly, with rates coming down significantly over the last several decades. Countries have redesigned their tax bases by changing the treatment of losses, interest, and capital costs. A recent OECD report highlights the general stabilization of corporate tax revenues and statutory rates alongside major changes to address profit-shifting opportunities.
A Blow to Pillar 1 June 17, 2020 The U.S. has called for a pause in global digital tax negotiations, dealing a blow to Pillar 1 of the OECD's international tax project. What happens next could be very harmful for the global economy.
The U.S. Trade Representative Expands Its Digital Services Tax Investigations June 2, 2020 The U.S. Trade Representative (USTR) expanded its digital service tax investigations, announcing Section 301 investigations into digital tax policies in nine countries and the European Union. The announcement follows an investigation of the French digital services tax that was completed in 2019, after which the USTR threatened significant #tariffs in retaliation against France.
Digital Taxation Around the World May 27, 2020 The digitalization of the economy has been a key focus of tax debates in recent years. Our new report reviews digital tax policies around the world with a focus on OECD countries, explores the various flaws and benefits associated with the wide set of proposals, and provides recommendations for lawmakers to consider.
Digital Services Taxes: Do They Comply with International Tax, Trade, and EU Law? May 26, 2020 A digital services tax like the one implemented by France likely violates both the General Agreement on Trade in Services and a model U.S. free trade agreement. However, it is uncertain whether meaningful relief could be obtained under either regime.
Chaos to the Left of Me. Chaos to the Right of me. May 5, 2020 The OECD recently announced that the negotiation timeline for new digital tax proposals has now been pushed back to October due to the COVID-19 pandemic, although the end-of-year deadline for the overall project is still in place.
Is Now the Time for a $100 billion Tax Increase? April 13, 2020 Seemingly unconcerned about how the digital project could impact the economy at this crisis moment, officials at the OECD recently released a statement boasting that they are continuing to work “full steam” on their global digital tax project.
Summary of the OECD’s Impact Assessment on Pillar 1 and Pillar 2 March 17, 2020 The OECD presented its preliminary impact assessment on the Pillar 1 and Pillar 2 proposals. The impact assessment includes estimated revenue and investment effects presented at a country group level (low-, middle- and high-income countries and investment hubs). The OECD estimates global corporate income tax revenues to increase by 4 percent if both pillars get implemented, equaling $100 billion annually.
Bracing for Impact February 11, 2020 Though they are limited by both data and assumptions, the OECD will face similar limitations. As policymakers work to fine-tune the proposals under both Pillar 1 and 2 the impact assessment should be a critical part of that discussion.
Profit Shifting: Evaluating the Evidence and Policies to Address It January 31, 2020 The OECD has been working to assess the impact of their program of work, and it will be critical for this assessment to take into account impacts not only on revenues, but also on growth and investment.
FAQ on Digital Services Taxes and the OECD’s BEPS Project January 30, 2020 What is a digital services tax (DST)? What countries have announced, proposed, or implemented a DST? What are some of the criticisms of a DST? What are alternatives to a DST? What is the OECD BEPS project and what is its main objective? What is the main objective of OECD Pillar 1? What is the main objective of OECD Pillar 2?
What European OECD Countries Are Doing about Digital Services Taxes November 22, 2021 Despite ongoing multilateral negotiations in the OECD, about half of all European OECD countries have either announced, proposed, or implemented their own unilateral digital services tax.
How Controlled Foreign Corporation Rules Look Around the World: China January 14, 2020 The Chinese approach to base erosion and profit shifting is more focused on the application of transfer pricing rules and not on the application of CFC rules. Even with the rules in place, the Chinese tax authorities have not enforced the rules as much as other countries have.
Tax Foundation Response to OECD Public Consultation Document: Global Anti-Base Erosion Proposal (“GloBE”) (Pillar Two) December 2, 2019 The tax base for the income-inclusion rule will be just as important as determining the rate, and both the base and the rate will likely impact business decisions. Additionally, policymakers need to determine how the choice for blending fits with the overarching goal of the policy. And as the example of GILTI shows, it is essential to assess how current international tax regulations would interact with a global minimum tax.
The OECD’s Pillar 2 Proposal Raises Serious Questions November 8, 2019 Addressing tax avoidance is a key political issue for many countries, but these policies should not be discussed without accounting for the size of the current problem, how recent policy changes have addressed it, and what potential impacts might come from this new approach.
Response to OECD Public Consultation Document: Secretariat Proposal for a “Unified Approach” under Pillar One November 11, 2019 Unifying the proposal under sound principles in the context of clear economic analysis should allow the Inclusive Framework to minimize both the administrative and economic burdens that the Secretariat’s proposal could create.
The ABCs of the OECD Secretariat’s Unified Approach on Pillar 1 October 24, 2019 If there is double taxation due to digital services taxes or because a country is unwilling to conform to the structure of the Secretariat’s proposal, the impact would be a net negative for many businesses.
Next Steps from the OECD on BEPS 2.0 October 9, 2019 The continuation of this work is important, but the OECD and policymakers around the world should carefully consider whether these proposals will lead to more certainty, or if they will undermine that goal by simply be a step toward more unilateralism. The impact on cross-border investment will also be a critical issue to consider, and the ongoing impact assessment by the OECD is an important part of the work.
OECD Tackling Harmful Tax Practices September 18, 2019 Countries around the world often design their tax policies to become attractive targets for foreign investment. These policies can be anything from a system with special preferences for certain industries to a well-designed tax system based on principles of sound tax policy. Systems that are rife with special preferences and complexities can create distortions in local jurisdictions and across the global economy.
How Controlled Foreign Corporation Rules Look Around the World: United Kingdom July 15, 2019 The UK rules are designed to arrive at the most accurate definition of foreign income that should be taxed in the home country. These rules apply one of the most detailed approaches to solving the issue of taxing the right type and amount of foreign income. The method can be considered more effective, but the compliance implications and derived costs may be higher compared to those that are derived from the application of other methods.
The Impacts of Tightening up on Transfer Pricing July 11, 2019 As with other anti-base erosion policies, transfer pricing regulations reveal the challenges of designing rules that address problems associated with various strategies businesses use to minimize their tax burdens. While countries may want to target specific abuses, the way the rules are designed can have real economic impacts on cross-border investment.
How Controlled Foreign Corporation Rules Look Around the World: Netherlands July 8, 2019 The Dutch tax system is characterized by its simplicity and the attractiveness to investors. With the incorporation of CFC rules, the Dutch government protected its tax base from erosion and profit shifting. The Netherlands is facing a whole series of adjustments that would create a more complex system adapted to the international standards recommended by the OECD and adopted by the European Union Council. When revising the rules authorities must be mindful about not making the system more complex and to avoid increasing the compliance burden in the country.
How Controlled Foreign Corporation Rules Look Around the World: Japan July 3, 2019 Japan is a country with a complex multilayer system to calculate the corporate income tax. As a consequence, the CFC income determination has evolved as a complex set of rules to complement the corporate income tax. It would be a great idea for the Japanese authorities to address a simplification of the rules to facilitate the entry of new capital investments into their economy.
The Challenges of Consensus in the Digital Economy on the International Tax Treaty System June 25, 2019
How Controlled Foreign Corporation Rules Look Around the World: United States of America June 24, 2019 The United States was the first country to enact CFC rules, and it is probably the country with the most complex set of rules that will be presented in this blog series. The rules determine control using a combined ownership test: one for the corporation and the other at the shareholder level. The assessable income under the rules is generally passive income but the amount of foreign income subject to U.S. tax has expanded with the adoption of GILTI.
How Patent Boxes Impact Business Decisions June 20, 2019 As with every change in tax policy, there are trade-offs. The Modified Nexus Approach adds an additional layer of complexity to the already complex issue of taxing IP income. Linking tax breaks for IP income to its associated R&D activity has changed the game and will likely result in some businesses restructuring and relocating their IP assets and R&D activity. Effective tax rates on IP income will likely play an important role in determining optimal locations, giving measures such as R&D credits more importance. Whether this new approach to IP taxation will impact profit shifting and which countries will be the winners and losers is yet to be seen.
CFC Rules Around the World June 17, 2019 Our paper undertakes a review of controlled foreign corporation (CFC) rules around the world as a contribution to the global discussion over the possible expansion of existing anti-base erosion CFC regimes or the potential adoption of a minimum tax.
Summary and Analysis of the OECD’s Work Program for BEPS 2.0 June 18, 2019 From a broad standpoint, agreement at the OECD will require countries to give up some measure of their own tax sovereignty on policies they have designed to minimize the distortionary effects of the corporate income tax. Over the years tax competition has led to some countries adopting policies that are attractive to businesses because they have a more neutral rather than distortionary approach to taxing corporate income. This project could directly undermine that progress by introducing new levels of complexity and distortion that would ultimately have a negative impact on global trade and growth.
Ripple Effects from Controlled Foreign Corporation Rules June 13, 2019 Governments should recognize these trade-offs as they implement controlled foreign corporation (CFC) rules or change their tax policies in ways that increase taxes on foreign subsidiaries.
Putting the Pieces Together on BEPS June 6, 2019 Taxes matter for decisions to be made by businesses, individuals, and families, and it is important for policymakers to understand that rules can be designed to be neutral rather than distortionary.
Initial Thoughts on the OECD’s Inclusive Framework “Work Plan” to Resolve the Taxation of the Digital Economy May 31, 2019 The members of the OECD’s Inclusive Framework have set out an ambitious work plan to come to a consensus by 2020 on revising the way the digital economy is taxed. While the details of the policy changes under consideration are certainly important, equally important is the inclusion of a set of guidelines for performing comprehensive economic analysis of these policies and producing impact assessments that can inform member decision-making.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries May 2, 2019 The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.
Tax Foundation Response to OECD Public Consultation Document: Addressing the Tax Challenges of the Digitalization of the Economy March 4, 2019 Though the challenges to international tax policy are many, the OECD has a chance to work toward a system that creates fewer distortions and negative economic effects than the current one. However, given the policies on the table, it will certainly take quite an effort to avoid further complexity of international tax rules that creates challenges to global trade and economic prosperity.
Making Sense of Profit Shifting: Kenneth Klassen June 24, 2015 Kenneth Klassen is the Deloitte Professor and Director of the Waterloo Centre for Taxation in a Global Economy at the University of Waterloo.
Making Sense of Profit Shifting: Victoria Perry June 22, 2015 Victoria Perry is Assistant Director in the Fiscal Affairs Department and Division Chief of the Tax Policy Division at the International Monetary Fund.
Making Sense of Profit Shifting: Pascal Saint-Amans May 22, 2015 Pascal Saint-Amans is Director of the OECD’s Centre for Tax Policy and Administration (CPTA).
Making Sense of Profit Shifting: Dhammika Dharmapala May 14, 2015 Dhammika Dharmapala is a Professor of Law at the University of Chicago Law School.
Making Sense of Profit Shifting: Kimberly Clausing May 12, 2015 Kimberly Clausing is the Thormund A. Miller and Walter Mintz Professor of Economics at Reed College.
A Regulatory Tax Hike on U.S. Multinationals March 3, 2022 While much of the policy focus has been on proposals embedded in the Build Back Better agenda, a meaningful tax hike for multinational companies has already been adopted.
The Global Minimum Tax Changes the Game for Build Back Better Revenue March 1, 2022 One goal for the Build Back Better Act has been to increase the amount of revenue the U.S. raises from U.S. companies at home or abroad. With the global minimum tax rules in play, it is likely that the expected gains to the U.S. Treasury from foreign profits of U.S. companies will diminish.
Rushing Headlong into Formulary Apportionment February 28, 2022 Complex tax policies that work well “in theory” can often have a hard time when the rubber meets the road. One instance of this is the challenge that the OECD has created for itself with the global tax deal, also fondly known as Pillar 1 and Pillar 2.
Case Study: Global Tax Deal February 15, 2022 The Global Tax Deal is a significant shift in international tax rules. The OECD’s plan aims to reduce incentives for tax planning and avoidance by U.S. and foreign multinational companies by limiting tax competition and changing where companies pay taxes.
U.S. Tax Incentives Could be Caught in the Global Minimum Tax Crossfire January 28, 2022 The current prospect for the global minimum tax requires the attention of U.S. lawmakers. Otherwise, a tax benefit at home will just mean a tax increase abroad.
Gift or Lump of Coal: U.S. Cross-border Tax Changes Won’t Be Home for Christmas December 20, 2021 As 2021 comes to a close, countries are moving toward harmonizing tax rules for multinationals, but stalled talks on the Build Back Better Act in the United States means new uncertainties for a global agreement and for taxpayers.
What Do Global Minimum Tax Rules Mean for Corporate Tax Policies? December 20, 2021 The new OECD global minimum tax rules are complex, and some countries may opt to put them in place on top of preexisting rules for taxing multinational companies. However, countries should also consider ways to reform their existing rules in response to the minimum tax.
What’s Next for Tax Competition? October 28, 2021 The rules of tax competition are changing with the recent agreement on a global minimum tax and other changes to tax rules around the world, but that does not mean the contest is over.
Choose Your Own Adventure: Global Minimum Tax Edition September 27, 2021 Over the course of the last year, it has become clear that Democratic lawmakers want to change U.S. international tax rules. However, as proposals have surfaced in recent weeks, there are clear divides among various proposals.
International Tax Proposals and Profit Shifting August 24, 2021 There are many ways the U.S.’s international tax rules could be changed, reformed, improved, or worsened. Reflexively jacking up taxes on U.S. multinationals does not necessarily accomplish the goal of reducing or eliminating profit shifting, and it would in fact worsen it.
Adoption of Global Minimum Tax Could Raise U.S. Revenue…or Not August 19, 2021 This interaction between the U.S. proposals and those that may be put into law in foreign jurisdictions should give lawmakers caution when evaluating the revenue potential of changes to GILTI.
Options for Reforming the Taxation of U.S. Multinationals August 12, 2021 The Biden administration’s international tax proposals would impose a 7.7 percent surtax on the foreign profits of U.S. multinationals, resulting in a net increase in profit shifting out of the U.S.
Insights from the UN World Investment Report for Global Tax Reform July 8, 2021 The United Nations (UN) recently released its annual “World Investment Report,” which shows the dramatic fall in global foreign direct investment (FDI) caused by the COVID-19 crisis.
CFC Rules in Europe July 8, 2021 To prevent businesses from minimizing their tax liability by taking advantage of cross-country differences, countries have implemented various anti-tax avoidance measures, such as the so-called Controlled Foreign Corporation (CFC) rules.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries July 7, 2021 From a policy perspective it is appropriate to combat base erosion and profit shifting, but policymakers need to keep in mind the need for simplicity to avoid increasing the compliance burden on taxpayers and administrative burdens on tax authorities.
What’s in the New Global Tax Agreement? April 7, 2022 The agreement represents a major change for tax competition, and many countries will be rethinking their tax policies for multinationals in light of it. However, with both the U.S. and EU hitting roadblocks in their respective legislative processes, it is unclear when or even if the agreement will be implemented. If implementation fails, a return to a world of distortive European digital services taxes and retaliatory American tariffs could be on the horizon.
Which Global Minimum Tax Will We Get? April 8, 2022 Over the course of the last year, it has become clear that Democratic lawmakers want to change U.S. international tax rules. However, as proposals have been debated in recent months, there are clear divides between U.S. proposals and the global minimum tax rules.
What We Know: Reviewing the Academic Literature on Profit Shifting June 22, 2021 Lawmakers around the world are considering substantial changes to international tax rules to address tax avoidance. Many changes have already been made in recent years, with early economic evidence indicating that they may not only address tax avoidance but also impact business hiring and investment decisions.
New Research Shows Major Changes for U.S. Companies Earning Profits from Ireland June 16, 2021 New data show that the recent policy changes that have been implemented by the U.S., Ireland, and dozens of other countries are having an impact. The question for policymakers is whether they will take the time to understand these impacts before jumping to the next project to change international tax rules yet again.
Carve-ins and Carve-outs: Open Questions for Global Tax Reform June 11, 2021 There has been some confusion about how some parts of the recent G7 agreement on new tax rules for multinational companies might work. The new policies would target the largest and most profitable multinationals and bring in a global minimum tax.
A Global Minimum Tax and Cross-Border Investment: Risks & Solutions June 17, 2021 Leaders around the world are quickly moving to finalize an agreement on a global minimum tax in 2021, based on the so-called “Pillar Two” proposal from the OECD.
Two Important Issues that Must Be Resolved in “Global Tax Reform” May 25, 2021 If the U.S. is suggesting a 15 percent effective rate as the minimum acceptable rate for a global agreement, then the tax bases of the various minimum taxes adopted as part of the agreement should be aligned to minimize complexities and unintended consequences.
Recent Analysis Explores Pillar 1 Risks and the Potential for Disputes May 10, 2021 As countries move closer to agreement on how the OECD Pillar 1 Amount A will work and which companies will be impacted by it, it is incredibly important for policymakers to continue to evaluate not just the intended effects but also the potential unintended consequences.
Treasury’s Latest Pillar 1 Proposal: A Strategy to Split the Riches or Give Away the Store? April 14, 2021 New international tax rules on super-profits would disproportionately impact U.S. companies however they are designed. The question that Treasury should answer is why limit the policy in such a way that magnifies that disproportionate application and the risk to the U.S. tax base.
Can GILTI and the GloBE be Harmonized in a Biden Administration? March 4, 2021 While there are several parts of the policy that are subject to further discussion and agreement, GloBE is expected to be different from GILTI in several ways.
U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI February 17, 2021 The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.
Day 2 of OECD Consultation on International Tax Reform Blueprints January 15, 2021 The OECD consultation is in the context of the Inclusive Framework on Base Erosion and Profit Shifting which is made up of delegates from more than 135 countries and is focused on policies that reduce opportunities for tax avoidance by multinational companies. The current proposals being considered would change both where and how much companies pay in corporate taxes.
Day 1 of OECD Consultation on International Tax Reform Blueprints January 14, 2021 The first session was focused on Pillar 1 of the OECD proposal. The pieces in Pillar 1 would change tax rules so that companies would be paying more taxes in countries based on the location of customers. This approach would move more tax revenues into so-called “market countries.”
Two Roads Diverge in the OECD’s Impact Assessment October 20, 2020 The difference that the OECD presents between the potential impact in the context of agreement compared to a harmful tax and trade war should show policymakers the value of continuing multilateral discussions.
Pillars, Blueprints, an Impact Assessment, and Construction Delays October 13, 2020 The OECD released blueprints for proposals on changing international tax rules alongside an impact assessment based on the overall design of the proposals. While the blueprints cover proposals both for changing where large multinationals owe corporate tax and designing a global minimum tax, there are still many unanswered questions. In the meantime, other digital tax proposals are moving forward and have the potential to result in a harmful tax and trade war.
Where Should the Money Come From? August 12, 2020 The fiscal response to the COVID-19 pandemic will require policymakers to consider what revenue resources should be used to fill budget gaps. Tax policy experts have proposed wealth taxes, (global) corporate minimum taxes, excess profits taxes, and digital taxes as opportunities for governments to raise new revenues.
Decades in Corporate Taxation July 8, 2020 Corporate taxation has evolved significantly, with rates coming down significantly over the last several decades. Countries have redesigned their tax bases by changing the treatment of losses, interest, and capital costs. A recent OECD report highlights the general stabilization of corporate tax revenues and statutory rates alongside major changes to address profit-shifting opportunities.
A Blow to Pillar 1 June 17, 2020 The U.S. has called for a pause in global digital tax negotiations, dealing a blow to Pillar 1 of the OECD's international tax project. What happens next could be very harmful for the global economy.
The U.S. Trade Representative Expands Its Digital Services Tax Investigations June 2, 2020 The U.S. Trade Representative (USTR) expanded its digital service tax investigations, announcing Section 301 investigations into digital tax policies in nine countries and the European Union. The announcement follows an investigation of the French digital services tax that was completed in 2019, after which the USTR threatened significant #tariffs in retaliation against France.
Digital Taxation Around the World May 27, 2020 The digitalization of the economy has been a key focus of tax debates in recent years. Our new report reviews digital tax policies around the world with a focus on OECD countries, explores the various flaws and benefits associated with the wide set of proposals, and provides recommendations for lawmakers to consider.
Digital Services Taxes: Do They Comply with International Tax, Trade, and EU Law? May 26, 2020 A digital services tax like the one implemented by France likely violates both the General Agreement on Trade in Services and a model U.S. free trade agreement. However, it is uncertain whether meaningful relief could be obtained under either regime.
Chaos to the Left of Me. Chaos to the Right of me. May 5, 2020 The OECD recently announced that the negotiation timeline for new digital tax proposals has now been pushed back to October due to the COVID-19 pandemic, although the end-of-year deadline for the overall project is still in place.
Is Now the Time for a $100 billion Tax Increase? April 13, 2020 Seemingly unconcerned about how the digital project could impact the economy at this crisis moment, officials at the OECD recently released a statement boasting that they are continuing to work “full steam” on their global digital tax project.
Summary of the OECD’s Impact Assessment on Pillar 1 and Pillar 2 March 17, 2020 The OECD presented its preliminary impact assessment on the Pillar 1 and Pillar 2 proposals. The impact assessment includes estimated revenue and investment effects presented at a country group level (low-, middle- and high-income countries and investment hubs). The OECD estimates global corporate income tax revenues to increase by 4 percent if both pillars get implemented, equaling $100 billion annually.
Bracing for Impact February 11, 2020 Though they are limited by both data and assumptions, the OECD will face similar limitations. As policymakers work to fine-tune the proposals under both Pillar 1 and 2 the impact assessment should be a critical part of that discussion.
Profit Shifting: Evaluating the Evidence and Policies to Address It January 31, 2020 The OECD has been working to assess the impact of their program of work, and it will be critical for this assessment to take into account impacts not only on revenues, but also on growth and investment.
FAQ on Digital Services Taxes and the OECD’s BEPS Project January 30, 2020 What is a digital services tax (DST)? What countries have announced, proposed, or implemented a DST? What are some of the criticisms of a DST? What are alternatives to a DST? What is the OECD BEPS project and what is its main objective? What is the main objective of OECD Pillar 1? What is the main objective of OECD Pillar 2?
What European OECD Countries Are Doing about Digital Services Taxes November 22, 2021 Despite ongoing multilateral negotiations in the OECD, about half of all European OECD countries have either announced, proposed, or implemented their own unilateral digital services tax.
Tax Foundation Response to OECD Public Consultation Document: Global Anti-Base Erosion Proposal (“GloBE”) (Pillar Two) December 2, 2019 The tax base for the income-inclusion rule will be just as important as determining the rate, and both the base and the rate will likely impact business decisions. Additionally, policymakers need to determine how the choice for blending fits with the overarching goal of the policy. And as the example of GILTI shows, it is essential to assess how current international tax regulations would interact with a global minimum tax.
The OECD’s Pillar 2 Proposal Raises Serious Questions November 8, 2019 Addressing tax avoidance is a key political issue for many countries, but these policies should not be discussed without accounting for the size of the current problem, how recent policy changes have addressed it, and what potential impacts might come from this new approach.
Response to OECD Public Consultation Document: Secretariat Proposal for a “Unified Approach” under Pillar One November 11, 2019 Unifying the proposal under sound principles in the context of clear economic analysis should allow the Inclusive Framework to minimize both the administrative and economic burdens that the Secretariat’s proposal could create.
The ABCs of the OECD Secretariat’s Unified Approach on Pillar 1 October 24, 2019 If there is double taxation due to digital services taxes or because a country is unwilling to conform to the structure of the Secretariat’s proposal, the impact would be a net negative for many businesses.
Next Steps from the OECD on BEPS 2.0 October 9, 2019 The continuation of this work is important, but the OECD and policymakers around the world should carefully consider whether these proposals will lead to more certainty, or if they will undermine that goal by simply be a step toward more unilateralism. The impact on cross-border investment will also be a critical issue to consider, and the ongoing impact assessment by the OECD is an important part of the work.
OECD Tackling Harmful Tax Practices September 18, 2019 Countries around the world often design their tax policies to become attractive targets for foreign investment. These policies can be anything from a system with special preferences for certain industries to a well-designed tax system based on principles of sound tax policy. Systems that are rife with special preferences and complexities can create distortions in local jurisdictions and across the global economy.
How Controlled Foreign Corporation Rules Look Around the World: United Kingdom July 15, 2019 The UK rules are designed to arrive at the most accurate definition of foreign income that should be taxed in the home country. These rules apply one of the most detailed approaches to solving the issue of taxing the right type and amount of foreign income. The method can be considered more effective, but the compliance implications and derived costs may be higher compared to those that are derived from the application of other methods.
The Impacts of Tightening up on Transfer Pricing July 11, 2019 As with other anti-base erosion policies, transfer pricing regulations reveal the challenges of designing rules that address problems associated with various strategies businesses use to minimize their tax burdens. While countries may want to target specific abuses, the way the rules are designed can have real economic impacts on cross-border investment.
How Controlled Foreign Corporation Rules Look Around the World: Netherlands July 8, 2019 The Dutch tax system is characterized by its simplicity and the attractiveness to investors. With the incorporation of CFC rules, the Dutch government protected its tax base from erosion and profit shifting. The Netherlands is facing a whole series of adjustments that would create a more complex system adapted to the international standards recommended by the OECD and adopted by the European Union Council. When revising the rules authorities must be mindful about not making the system more complex and to avoid increasing the compliance burden in the country.
How Controlled Foreign Corporation Rules Look Around the World: Japan July 3, 2019 Japan is a country with a complex multilayer system to calculate the corporate income tax. As a consequence, the CFC income determination has evolved as a complex set of rules to complement the corporate income tax. It would be a great idea for the Japanese authorities to address a simplification of the rules to facilitate the entry of new capital investments into their economy.
The Challenges of Consensus in the Digital Economy on the International Tax Treaty System June 25, 2019
How Controlled Foreign Corporation Rules Look Around the World: United States of America June 24, 2019 The United States was the first country to enact CFC rules, and it is probably the country with the most complex set of rules that will be presented in this blog series. The rules determine control using a combined ownership test: one for the corporation and the other at the shareholder level. The assessable income under the rules is generally passive income but the amount of foreign income subject to U.S. tax has expanded with the adoption of GILTI.
How Patent Boxes Impact Business Decisions June 20, 2019 As with every change in tax policy, there are trade-offs. The Modified Nexus Approach adds an additional layer of complexity to the already complex issue of taxing IP income. Linking tax breaks for IP income to its associated R&D activity has changed the game and will likely result in some businesses restructuring and relocating their IP assets and R&D activity. Effective tax rates on IP income will likely play an important role in determining optimal locations, giving measures such as R&D credits more importance. Whether this new approach to IP taxation will impact profit shifting and which countries will be the winners and losers is yet to be seen.
CFC Rules Around the World June 17, 2019 Our paper undertakes a review of controlled foreign corporation (CFC) rules around the world as a contribution to the global discussion over the possible expansion of existing anti-base erosion CFC regimes or the potential adoption of a minimum tax.
Summary and Analysis of the OECD’s Work Program for BEPS 2.0 June 18, 2019 From a broad standpoint, agreement at the OECD will require countries to give up some measure of their own tax sovereignty on policies they have designed to minimize the distortionary effects of the corporate income tax. Over the years tax competition has led to some countries adopting policies that are attractive to businesses because they have a more neutral rather than distortionary approach to taxing corporate income. This project could directly undermine that progress by introducing new levels of complexity and distortion that would ultimately have a negative impact on global trade and growth.
Ripple Effects from Controlled Foreign Corporation Rules June 13, 2019 Governments should recognize these trade-offs as they implement controlled foreign corporation (CFC) rules or change their tax policies in ways that increase taxes on foreign subsidiaries.
Putting the Pieces Together on BEPS June 6, 2019 Taxes matter for decisions to be made by businesses, individuals, and families, and it is important for policymakers to understand that rules can be designed to be neutral rather than distortionary.
Initial Thoughts on the OECD’s Inclusive Framework “Work Plan” to Resolve the Taxation of the Digital Economy May 31, 2019 The members of the OECD’s Inclusive Framework have set out an ambitious work plan to come to a consensus by 2020 on revising the way the digital economy is taxed. While the details of the policy changes under consideration are certainly important, equally important is the inclusion of a set of guidelines for performing comprehensive economic analysis of these policies and producing impact assessments that can inform member decision-making.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries May 2, 2019 The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.
Tax Foundation Response to Ireland Department of Finance Consultation Document: Consultation on OECD International Tax Proposals September 8, 2021 The recent effort to change international tax rules has been one of significant contradictions. The proposals have been driven by arguments about the need to raise additional revenues, to stabilize corporate tax rates, or to prevent offshoring. However, upon closer examination, these three arguments fail to capture what is occurring.
Tax Foundation Response to OECD Public Consultation Document: Reports on the Pillar One and Pillar Two Blueprints December 14, 2020 The Tax Foundation response to the OECD public consultation document on the reports on the OECD Pillar 1 and OECD Pillar 2 blueprints.
Tax Foundation Response to OECD Public Consultation Document: Global Anti-Base Erosion Proposal (“GloBE”) (Pillar Two) December 2, 2019 The tax base for the income-inclusion rule will be just as important as determining the rate, and both the base and the rate will likely impact business decisions. Additionally, policymakers need to determine how the choice for blending fits with the overarching goal of the policy. And as the example of GILTI shows, it is essential to assess how current international tax regulations would interact with a global minimum tax.
Response to OECD Public Consultation Document: Secretariat Proposal for a “Unified Approach” under Pillar One November 11, 2019 Unifying the proposal under sound principles in the context of clear economic analysis should allow the Inclusive Framework to minimize both the administrative and economic burdens that the Secretariat’s proposal could create.
Tax Foundation Response to OECD Public Consultation Document: Addressing the Tax Challenges of the Digitalization of the Economy March 4, 2019 Though the challenges to international tax policy are many, the OECD has a chance to work toward a system that creates fewer distortions and negative economic effects than the current one. However, given the policies on the table, it will certainly take quite an effort to avoid further complexity of international tax rules that creates challenges to global trade and economic prosperity.
CFC Rules in Europe August 20, 2020 To prevent businesses from minimizing their tax liability by taking advantage of cross-country differences in taxation, countries have implemented various anti-tax avoidance measures, one known as Controlled Foreign Corporation (CFC) rules.
How Controlled Foreign Corporation Rules Look Around the World: China January 14, 2020 The Chinese approach to base erosion and profit shifting is more focused on the application of transfer pricing rules and not on the application of CFC rules. Even with the rules in place, the Chinese tax authorities have not enforced the rules as much as other countries have.
How Controlled Foreign Corporation Rules Look Around the World: United Kingdom July 15, 2019 The UK rules are designed to arrive at the most accurate definition of foreign income that should be taxed in the home country. These rules apply one of the most detailed approaches to solving the issue of taxing the right type and amount of foreign income. The method can be considered more effective, but the compliance implications and derived costs may be higher compared to those that are derived from the application of other methods.
How Controlled Foreign Corporation Rules Look Around the World: Netherlands July 8, 2019 The Dutch tax system is characterized by its simplicity and the attractiveness to investors. With the incorporation of CFC rules, the Dutch government protected its tax base from erosion and profit shifting. The Netherlands is facing a whole series of adjustments that would create a more complex system adapted to the international standards recommended by the OECD and adopted by the European Union Council. When revising the rules authorities must be mindful about not making the system more complex and to avoid increasing the compliance burden in the country.
How Controlled Foreign Corporation Rules Look Around the World: Japan July 3, 2019 Japan is a country with a complex multilayer system to calculate the corporate income tax. As a consequence, the CFC income determination has evolved as a complex set of rules to complement the corporate income tax. It would be a great idea for the Japanese authorities to address a simplification of the rules to facilitate the entry of new capital investments into their economy.
How Controlled Foreign Corporation Rules Look Around the World: United States of America June 24, 2019 The United States was the first country to enact CFC rules, and it is probably the country with the most complex set of rules that will be presented in this blog series. The rules determine control using a combined ownership test: one for the corporation and the other at the shareholder level. The assessable income under the rules is generally passive income but the amount of foreign income subject to U.S. tax has expanded with the adoption of GILTI.
CFC Rules Around the World June 17, 2019 Our paper undertakes a review of controlled foreign corporation (CFC) rules around the world as a contribution to the global discussion over the possible expansion of existing anti-base erosion CFC regimes or the potential adoption of a minimum tax.
Ripple Effects from Controlled Foreign Corporation Rules June 13, 2019 Governments should recognize these trade-offs as they implement controlled foreign corporation (CFC) rules or change their tax policies in ways that increase taxes on foreign subsidiaries.
Thin-Cap Rules in Europe August 27, 2020 To discourage a certain form of international debt shifting, many countries have implemented so-called thin-capitalization rules (thin-cap rules), which limit the amount of interest a multinational business can deduct for tax purposes.
How Patent Boxes Impact Business Decisions June 20, 2019 As with every change in tax policy, there are trade-offs. The Modified Nexus Approach adds an additional layer of complexity to the already complex issue of taxing IP income. Linking tax breaks for IP income to its associated R&D activity has changed the game and will likely result in some businesses restructuring and relocating their IP assets and R&D activity. Effective tax rates on IP income will likely play an important role in determining optimal locations, giving measures such as R&D credits more importance. Whether this new approach to IP taxation will impact profit shifting and which countries will be the winners and losers is yet to be seen.
Making Sense of Profit Shifting: Kenneth Klassen June 24, 2015 Kenneth Klassen is the Deloitte Professor and Director of the Waterloo Centre for Taxation in a Global Economy at the University of Waterloo.
Making Sense of Profit Shifting: Victoria Perry June 22, 2015 Victoria Perry is Assistant Director in the Fiscal Affairs Department and Division Chief of the Tax Policy Division at the International Monetary Fund.
Making Sense of Profit Shifting: Pascal Saint-Amans May 22, 2015 Pascal Saint-Amans is Director of the OECD’s Centre for Tax Policy and Administration (CPTA).
Making Sense of Profit Shifting: Dhammika Dharmapala May 14, 2015 Dhammika Dharmapala is a Professor of Law at the University of Chicago Law School.
Making Sense of Profit Shifting: Kimberly Clausing May 12, 2015 Kimberly Clausing is the Thormund A. Miller and Walter Mintz Professor of Economics at Reed College.
