Wednesday, June 23, 2021
Lorraine Eden (Texas A&M), Taxing the Top 100: U.S. Estimates of Winners and Losers From Pillar One Amount A:
The October 2020 Pillar One proposal by the OECD/Inclusive Framework (IF) is designed to shift some portion of the global pre-tax profits of multinational enterprises (MNEs) in automated digital services (ADS) and consumer-facing businesses (CFB) to Market jurisdictions where ADS and CFB revenues are generated. In April 2021, the U.S. government proposed that the OECD/IF reframe Amount A, broadening its industry scope from ADS and CFB to all industries and limiting the number of in-scope businesses to the world’s 100 largest and most profitable MNEs. How would changing the scope of Amount A from ADS and CFB to the top 100 global MNEs affect the likely winner and loser status of MNEs, industries and tax jurisdictions from Amount A?
To address this question, I first use Fortune Global 500 data to examine the top 200 MNEs by industry and home country. My results suggest several issues and concerns about how the U.S. proposal to tax the top 100 would work in practice.
I then assess the tax base impacts of the U.S proposal using U.S. Bureau of Economic Analysis (BEA) data. Estimates of corporate income tax (CIT) base gains and losses, by country and industry, are provided for jurisdictions that are host countries to MOFAs (majority-owned foreign affiliates with U.S. parents) and are home countries to MOUSAs (U.S. majority-owned affiliates with foreign parents). I conclude that key factors determining winners and losers from Amount A under the U.S. proposal would be: (1) whether MNEs in financial and natural resource industries would be included or excluded from Amount A; (2) how tax base relief would be provided by Residence jurisdictions on territorial CIT systems, in particular, the United States and Europe; and (3) whether tax jurisdictions and MNEs would take advantage of opportunities to engage in Pillar One Tax Games.