Pillar Two of the international tax reform, which aims to establish a minimum global tax rate of 15%, “risks creating a more complex and unfair international tax system”, said the business-oriented think-tank Tax Foundation Europe on Thursday 22 August.
According to the think-tank, this pillar is inadvertently fostering new, opaque and complex forms of competition, and policymakers should consider alternative approaches to creating a fairer international tax environment. It may not eliminate competition for investment and income, but it may just change the way countries compete for investment to less transparent and less efficient methods.
On the one hand, Pillar Two fails to treat developed and developing countries equitably, and “the former must leave room for the latter to attract investment”. On the other hand, it can inadvertently harm the economies of high-tax countries, as tax rates in low-tax countries can facilitate reinvestment in high-tax countries. The global minimum tax could erode this dynamic.
Finally, refundable tax credits, which can reduce a taxpayer’s liability below zero, resulting in a refund, are not counted as a reduction in tax under Pillar Two. A subsidy war will significantly impact countries that cannot afford to participate in cash handouts to companies to remain competitive.
Read the opinion of the Tax Foundation: https://aeur.eu/f/d7r (Original version in French by Anne Damiani)