The Global Minimum Tax: A Guide For Developing Countries

Allison Christians (McGill; Google Scholar) et al., A Guide for Developing Countries on How to Understand and Adapt to the Global Minimum Tax: Draft for Consultation:

Abstract
This Guide seeks to provide information helpful to countries making policy decisions with respect to the Pillar Two Global Anti-Base Erosion (GloBE) minimum tax proposal. The GloBE initiative creates a pool of potential tax revenues on in-scope corporate multinationals’ incomes to be collected by GloBE participating countries (that host an entity in the MNE group) whenever the effective tax rate of an entity (or entities) within the MNE group in the country falls below 15 percent. Some domestic tax measures intended to attract and keep foreign investment may lose their effectiveness as a result. Further, some of GloBE’s impact may be indirect, providing lawmakers with an opportunity to consider policy reforms whether or not they adopt GloBE itself. It is in the interest of each country to examine the potential applicability of GloBE to its taxpayers and the interplay of GloBE rules with its domestic tax system in order to make informed decisions about whether and in what manner to respond.

Executive Summary
Many countries will be affected by the Pillar Two Global Anti-Base Erosion (GloBE) minimum tax proposal whether or not they respond with domestic measures. The GloBE initiative creates a pool of potential tax revenues on in-scope corporate multinationals’ incomes to be collected by GloBE participating countries (that host an entity in the multinational enterprise (MNE) group) whenever the effective tax rate of an entity (or entities) within the MNE group in the country falls below 15%. Some domestic tax measures intended to attract and keep foreign investment may lose their effectiveness as a result. Further, some of GloBE’s impact may be indirect, providing lawmakers with an opportunity to consider policy reforms whether or not they adopt GloBE itself. It is in the interest of each country to examine the potential applicability of GloBE to its taxpayers and the interplay of GloBE rules with its domestic tax system in order to make informed decisions about whether and in what manner to respond. This guide seeks to provide information helpful to making such informed decisions.

For countries that decide to respond legislatively, policy options range from “qualified” to general reforms. Once GloBE is adopted by enough countries, some countries may be able to collect more tax revenues with corresponding domestic reforms. These reforms may include adopting a domestic minimum tax, whether as a GloBE-defined “qualified” domestic minimum tax or a general domestic minimum tax, or they may consider revisiting existing tax incentives, or a combination of these. Preserving existing incentives and rate structures for taxpayers outside the scope of GloBE while claiming the minimum tax on in-scope companies may be a priority for some countries. For other countries, general reforms may mobilize more domestic revenue and follow the overall international trend toward more comprehensive taxation of large multinationals. This guide examines a range of possible options and explains the general merits and challenges of each.

The likely impact of GloBE on domestic revenues can be broadly estimated from publicly available data, and tax administrations could obtain more accurate estimates with country-specific data. Country-by-country reporting provides some publicly available data that permits limited assessment of the likely tax revenue impacts for countries considering whether and how to respond to GloBE. Tax administrators should be able to access more detailed data with specific taxpayer information, including that obtained through information exchange. This guide provides an assessment using publicly available data and explains how countries could undertake more accurate assessments with more specific data.

Existing treaties and other agreements may affect the impact of available policy choices. Some domestic responses to GloBE may face legal barriers, including fiscal stabilization provisions that may prevent tax law changes for protected taxpayers, as well as some terms in existing bilateral and multilateral trade and investment treaties. Even where potentially applicable, many of these barriers may be overcome, depending on the specific terms in each case. This guide addresses the range and likelihood of possible barriers and alternative domestic responses thereto.