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Taxing The Top 100—Part 2: Potential Roadblocks

June 15, 2021, 7:01 AM

The U.S. proposal to drop automated digital services (ADS) and consumer-facing business (CFB) industries and replace them with the top 100 MNEs raises a variety of issue areas that would also need to be addressed. I outline a few below. The first issue area suggested by Tables 1 and 2 is the critical importance of deciding whether finance and insurance (FIN&INS) and mining are in or out of the top 100, especially FIN&INS given its overwhelming importance in the top 200 of the Fortune Global 500. By number and dollar value of sales and profit, the tables suggest that the key industries that should be included (in order of size) are FIN&INS, MFG, INFO/ADS, and Mining; leaving any of these industries out of the list would put much more pressure on the MNEs and industries that remain in scope.

Table 1 Fortune 100 and 200 Global MNEs by Industry

Eden 6-21 Top 100 - Top 200 by Industry

Source: author’s calculations using data from

Table 2: Fortune 100 and 200 Global MNEs by Country, 2020

A second issue is the stability of the list of MNEs that would be included in the top 100 MNEs under the U.S. proposal. As a simple check, I examined the top 200 MNEs on the Fortune Global 500 in 2018. My calculations show that nearly 50% of the MNEs (98 firms) in the top 200 list in 2018 were not in the top 200 two years later; similarly, just over 50% (101 firms) on the top 200 list in 2020 were not there in 2018. Only 101 of the 200 firms were on both the 2018 and 2020 lists. The substantial churn in the top 200 of the Fortune Global 500 suggests the list of top 100 MNEs under the U.S. proposal for Amount A would be subject to the same flip flops: in one year, out the next. (For a fascinating animated chart that shows how frequently the top MNEs change see The World’s Largest Companies by Revenue.)

A third concern is the availability, reliability and verifiability of data for determining the top 100. For example, consider the ranking of state-owned MNEs from countries like China or Russia where, for various reasons, the information used to compile the top 100 may not be accurate. How would the data for state-owned MNEs be verified? A related issue is privately held versus publicly traded companies. The same quantity and quality of data are not available for privately held companies since they face significantly less auditing, reporting, and regulatory requirements. Public companies often buy up their outstanding shares and go private to avoid these additional requirements; thus, the available information on privately held MNEs is much lower than for publicly traded ones. (See Ann Vanstraelen and Caren Schelleman, Auditing private companies: what do we know? 2017, Accounting and Business Research, 47:5, 565-584). For both state-owned and privately held firms, the availability, reliability and verifiability of their data would be a concern.

A fourth concern is that “Pillar One Tax Games” exist here too. Both MNEs and tax jurisdictions would have reasons to game the formula. For example, MNEs would be incentivized to game the Amount A formula so as to avoid being caught in the “Amount A fishing net.” An MNE could divest a division into an independent company in order to move its ranking in the second tier and thus avoid Amount A.

From the tax jurisdiction perspective, the implications of MNEs moving in and out of being in-scope for Amount A under the U.S. proposal are also disconcerting and provide incentives to game the Amount A formula. An example may be helpful. Assume in years 1 and 2 that an MNE pays Amount A to 20 Market Jurisdictions based on each jurisdiction’s share of Component C (GIDS) in the Amount A formula. In year 3 the MNE is not in the top 100 MNEs and so does not pay Amount A. The 20 jurisdictions that received Amount A tax base in years 1 and 2 from this MNE would clearly not be happy to lose that tax base in year 3 and might well look to recover the lost tax base through tougher audits and transfer price adjustments to replace the tax base lost under Amount A. Prospect Theory suggests this reaction by tax authorities could be quite likely.

In addition, the impacts of including only the top 100 MNEs could easily spill over into anticompetitive impacts also. For example, what if the companies ranked just below the top 100, and so excused from paying Amount A—those ranked from in the second tier from 101 to 200—are close competitors to the MNEs in the top 100. Being excluded from Amount A, the second tier would have a competitive advantage relative to the first tier, and a reason to game their numbers so as to stay out of the first tier.

As a last point, it is important to note that most of the concerns I have identified above would apply regardless of the number of MNEs that are in-scope for Amount A. Doubling or tripling the number adds more firms to the “Amount A fishing net” but the negative impacts of being included and the incentives to avoid the net are still there. Adding up this list of concerns suggests that there are multiple potential problems in the U.S. proposal to tax the top 100 global MNEs.

This article is Part 2 of two parts. For Part 1 of this article see “Taxing The Top 100—Part 1: Potential Roadblocks.” Bloomberg Tax subscribers can access the full-length article, Lorraine Eden, Taxing the Top 100: U.S. Estimates of Winners and Losers from Pillar One Amount A (Tax Mgmt. Int’l J., June 2021).

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Lorraine Eden is Professor Emerita of Management and Research Professor of Law at Texas A&M University ( She thanks Oliver Treidler, Ognian Stoichkov, Niraja Srinivasan, Tatiana Amba, Daniel Bunn, and Philippe Paumier for helpful comments on earlier versions of this paper. The views in this article are the author’s and do not reflect those of any other person or institution.

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