The reform of international taxation currently being negotiated at the OECD could generate up to 4% additional global corporate income tax revenues, or $100 billion per year, according to an economic analysis released, Thursday 13 February, by the OECD.
Without presenting the potential gains on a country-by-country basis - which it does not rule out at a later stage of the negotiations - the organisation concludes that the combined effect of Pillar I (digital taxation) and Pillar II (minimum business taxation) of the reform should be broadly similar in high-, middle- and low-income economies.
The analysis shows that Pillar I would generate "a small tax revenue gain for most jurisdictions", as some tax rights would shift from low-tax jurisdictions to higher-tax jurisdictions.
Low- and middle-income economies are expected to earn relatively more revenue than advanced economies, while countries considered "investment hubs" are expected to suffer a moderate loss of tax revenue, according to the OECD. In addition, more than half of the profit re-allocated would come from the 100 largest multinational corporations (MNE groups).
Of course, these estimates assume that Pillar I is not based on the 'Safe Harbor' model desired by the United States, which would leave it up to companies to choose whether or not to apply the new system set out by the OECD (see EUROPE 12416/20), the organisation points out.
But it is above all Pillar II that could, according to the analysis, generate "a considerable increase in tax revenues". By reducing the tax rate differentials between jurisdictions, the reform is expected to lead to a significant reduction in profit shifting by MNE groups, the OECD says, which will be particularly important for developing economies.
Estimates for Pillar II are based on a minimum tax rate of 12.5%, said David Bradbury, the Head of Division of taxation policies and OECD statistics, while at the same time ensuring that other rates had also been explored.
Finally, the overall direct effect on investment costs is expected to be small, as reforms target firms with high levels of profitability and low effective tax rates, the OECD says.
The analysis is based on data from more than 200 jurisdictions and more than 27,000 MNE groups. It would, according to David Bradbury, be "reasonably in line" with other economic analyses carried out, notably that of the European Commission.
However, the OECD warns that it is likely to evolve depending on the outcome of the negotiations and the decisions taken by the Inclusive Framework. (Original version in French by Marion Fontana)