Since 2020, Spain has dropped from 26th to 34th on the International Tax Competitiveness due to multiple tax hikes, new taxes, and weak performances in all five index components.
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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.
It’s important for Poland to understand the main lesson of the Estonian approach: taxes should be designed with an overarching approach to maximize neutrality and minimize complexity and distortions. Instead of simply adopting a preference for small businesses, the Polish government should instead overhaul its corporate tax rules and truly adopt the Estonian approach to taxation.
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.