Countries could see $50 billion to $80 billion per year globally in new corporate income tax revenue under an OECD-led effort to revamp international tax rules.
If the estimate were to also include income raised under already-existing U.S.'s global intangible low-taxed income (GILTI) rules, the total international revenue effect would be up to $100 billion, the OECD said in to an economic assessment released Monday.
The plan would bring new revenue to some countries and raise corporate income tax globally as corporate profits are moved out of low-tax jurisdictions and companies face narrowing incentives to shift their profits, according to the OECD.
The Organization for Economic Cooperation and Development is working to get nearly 140 countries to overhaul how big technology companies, and other multinationals, are taxed. Countries are hoping the plan will replace a growing number of unilateral measures aimed at tech giants and avoid trade wars that could shrink global GDP, the report said.
The pandemic and political disagreements over the details of the plan have pushed back a goal for finding agreement into the middle of 2021, the OECD said.
The assessment didn’t include country-specific data, because some countries declined to release their data.
Part of the plan, known as Pillar One, would reallocate some of the profits of multinationals to the countries where they have users or consumers, while Pillar Two would create a global minimum tax rate.
Pillar One’s Amount A, the profit reallocation measures, would move about $100 billion of profit, and would raise an additional $5 billion to12 billion in tax revenue for countries because profits moved from low-tax to higher-tax jurisdictions would be taxed at a higher rate.
Amount A is designed to primarily impact large, profitable multinationals that are digital or otherwise rely heavily on intangibles, like intellectual property, the report said. That’s because Amount A will include a threshold so only profits above a certain margin, or “residual profits,” would fall into the rules, and only a percentage of those residual profits would be reallocated.
The profitability threshold and reallocation percentage numbers have yet to be decided, but the report estimated that $500 billion of corporate profits could be in-scope of Amount A—of which $100 million could be subject to tax in new jurisdictions, depending on the reallocation percentage.
Pillar One would have a bigger revenue impact on low- and middle-income jurisdictions, because less residual profit is currently located in those jurisdictions than in higher-income ones, the report said.
The report didn’t estimate the revenue impact of Amount B, which would use formulas to replace transfer pricing to determine returns for some routine functions. It also didn’t gauge the revenue impact of increased tax certainty under Pillar One measures.
Pillar Two would raise roughly $23 billion to $42 billion directly, and an additional $19 billion to $28 billion by reducing profit shifting.
Companies with low-taxed profits would be most heavily affected, the report said.
Higher-income countries would gain relatively more under Pillar Two, the report said. Pillar Two’s “income inclusion rule” allows a company’s parent country to tax it when the company is paying below the minimum rate in another jurisdiction, and countries in which multinationals are parented are more often higher-income jurisdictions, the report said.
“Still, lower income jurisdictions could benefit from significant gains as a result of the reduction in MNE profit shifting expected to result from Pillar Two,” the report said, referring to multinational enterprises. The estimates didn’t account for the effects of a “subject to tax rule,” which could bring more benefits to developing countries.
Tax-favorable “investment hubs"—countries with more than 1.5 times as much inbound foreign investment as their gross domestic product—could lose under Pillar One. This part of the plan would shrink their tax base by shifting profits away. But very low- or zero-tax jurisdictions may not see a sizable change to the amount of tax revenue they collect.
Pillar Two could also reduce the tax base of investment hubs, because a global minimum rate would reduce incentives for companies to use very low-tax jurisdictions.
“Still, many investment hubs may gain a substantial amount of tax revenues from Pillar Two, especially if they decide to increase the effective tax rate on profit in their jurisdiction when this rate is currently below the minimum rate,” the report said.