Paul L. Caron

Tuesday, December 6, 2022

Undertaxed Profits And The Use-It-or-Lose-It Principle

Allison Christians (McGill; Google Scholar) & Tarcísio Diniz Magalhães (Antwerp; Google Scholar), Undertaxed Profits and the Use-It-or-Lose-It Principle, 108 Tax Notes Int'l. 705 (Nov. 7, 2022):

Tax Notes Int'lIn this installment of the Big Picture, Christians and Magalhães defend pillar 2’s undertaxed profits rule, arguing that it is supported by fundamental principles of international tax law and economic logic. 

In recent weeks, commentators have taken issue with the functionality, theoretical justification, and legality of the global anti-baseerosion (GLOBE) undertaxed payments rule, now called the undertaxed profits rule. 

A common thread among the various arguments is a claim that the UTPR permits some countries to tax without a justifiable entitlement to do so. On the contrary, we argue that the guiding principle of GLOBE is “use it or lose it”; that this principle can be supported both in theory and in practice that has been observed over decades; and that in pursuing this principle, the UTPR is a coherent component of the overall GLOBE scheme for taxing profits of large multinational entities at a minimum agreed rate. Because such profits belong, in economic terms, to a group of companies at once, the UTPR mechanism is not objectionable on either international law or economic reasonability grounds. Pending a multilateral fix to any possible treaty-based issues, competent authorities should apply treaties in light of their mutual recognition of GLOBE.

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