Taxing Multinationals: A Fundamental Shift Is Under Way

Faccio, Tommaso; Gosh, J

Abstract

This article suggests a variant on the proposal for a global anti-base erosion tax (GloBE), which is more equitable, far less complex, and more practical, as it could be introduced by a coalition of willing states.
TEXT
The international efforts to reform taxation of multinational enterprises (MNEs) have reached a critical turning point. The current proposals to stem profit-shifting provide elements for a way forward, but the overall package is complex and could only be implemented through a universally adopted multilateral tax convention, which is highly improbable. We propose a variation of the key proposal for a global anti-base erosion tax (GloBE), which is more equitable, far less complex, and could be introduced by a coalition of willing states.
Launched after the great financial crash a decade ago, and following the explosion in profit shifting that took place from the 1990s onwards, an effective outcome for this initiative is now even more urgent as the world economy is plunged into a new crisis sparked by the global pandemic. The introduction of country-by-country reporting (CbCR) for MNEs has given tax authorities unprecedented insights into profit shifting as it affects their tax bases; and the publication of limited, aggregate data has shown the global scale of the problem to exceed US$1 trillion each year in tax losses. Yet these attempts to reform international rules designed a century ago have created a logjam, due mainly to the perceived need to achieve an illusory worldwide consensus among states.
I. Pillar Two’s Prospects and Flaws
The most promising proposal is for a global minimum corporate tax under Pillar Two. The technical blueprint published by the Secretariat of the Organisation for Economic Cooperation and Development (OECD) in October provides key building blocks. However, its overall design is excessively complex, and fails to provide a simple methodology that could be accepted as fair and effective by all states. It rightly starts from the reality that MNE corporate groups operate as unitary, centrally directed organisations, enabling them to avoid tax by attributing excessive profits to jurisdictions where they are subject to low or no taxation. However, it proposes separate measures for home (residence) and host (source) countries to apply top-up taxes, with a complex system of rules to manage the interaction of these rights.

Citation

Faccio, T., & Gosh, J. (2021). Taxing Multinationals: A Fundamental Shift Is Under Way. Intereconomics, 56, 62=63. https://doi.org/10.1007/s10272-021-0953-1

• Journal Article Type: Editorial
• Acceptance Date: Apr 1, 2021
• Online Publication Date: Apr 6, 2021
• Publication Date: 2021-03
• Deposit Date: May 19, 2021
• Publicly Available Date: May 20, 2021
• Journal: Intereconomics
• Print ISSN: 0020-5346
• Electronic ISSN: 1613-964X
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• Volume: 56
• Pages: 62=63
• DOI: https://doi.org/10.1007/s10272-021-0953-1
• Keywords: Economics, Econometrics and Finance (miscellaneous); Business, Management and Accounting (miscellaneous)
• Public URL: https://nottingham-repository.worktribe.com/output/5560776
• Publisher URL: https://link.springer.com/article/10.1007%2Fs10272-021-0953-1
• Additional Information: First Online: 6 April 2021