For a Better GLOBE: A Minimum Effective Tax Rate for Multinationals

7 Pages Posted: 22 Mar 2021

See all articles by Jeffery M. Kadet

Jeffery M. Kadet

University of Washington - School of Law

Alex Cobham

Tax Justice Network

Tommaso Faccio

Nottingham University Business School

Javier Garcia-Bernardo

University of Amsterdam - Amsterdam Institute for Social Science Research (AISSR)

Petr Jansky

Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies

Sol Picciotto

ICTD

Date Written: February 15, 2021

Abstract

An initiative is needed to break the logjam in the international negotiations to reform taxation of multinational enterprises (MNEs). The primary agreed goal of the project on Base Erosion and Profit Shifting (BEPS) was to better align MNEs’ taxable profits with the location of real economic activity. The more recent phase of the process has established that this entails starting from each MNE’s global consolidated profits and applying formulaic methods to ensure that those profits are taxed by at least one, and only one country. It has also become clear that countries wishing to defend their corporate tax base should ensure that MNEs’ global profits are subject to a minimum effective tax rate, to end both profit shifting and tax competition.

We propose a modified version of the proposal for a global anti-base erosion tax (the GloBE) that would integrate its two main components to provide a balanced allocation of taxing rights to the home and host countries of MNEs. This could command the wide basis of support needed for rapid adoption by a coalition of willing countries, allowing immediate action for a sharp reduction of the revenue losses caused by the current rules.

Our methodology for a minimum effective tax rate (METR) could be applied to MNEs by any countries that choose to do so, whether they are home to MNEs, host of MNEs, or both. Building on the GloBE, the METR would be compatible with existing tax treaties, but being non-discriminatory it also complies with other international obligations. Although it could be introduced unilaterally, interested countries, supported by regional groupings and international organisations, should develop mutually agreed rules for application of the METR. Integrating many elements of the current proposals and aligning with the identified direction of travel, the METR both attacks immediate concerns and contributes to the momentum for a more comprehensive multilateral agreement.

A longer and more detailed paper on the METR with economic consequences is available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3796030

Keywords: international tax, multinational corporations, BEPS, Pillar One, Pillar Two, GloBE

JEL Classification: F23, F42, F69, K33, K34

Suggested Citation

Kadet, Jeffery M. and Cobham, Alex and Faccio, Tommaso and Garcia-Bernardo, Javier and Jansky, Petr and Picciotto, Sol, For a Better GLOBE: A Minimum Effective Tax Rate for Multinationals (February 15, 2021). Available at SSRN: https://ssrn.com/abstract=3798887 or http://dx.doi.org/10.2139/ssrn.3798887

Jeffery M. Kadet (Contact Author)

University of Washington - School of Law ( email )

William H. Gates Hall
Box 353020
Seattle, WA 98105-3020
United States

Alex Cobham

Tax Justice Network ( email )

38 Stanley Avenue
Chesham, Bucks HP5 2JG
United Kingdom

HOME PAGE: http://taxjustice.net

Tommaso Faccio

Nottingham University Business School

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Javier Garcia-Bernardo

University of Amsterdam - Amsterdam Institute for Social Science Research (AISSR) ( email )

Amsterdam Roeterseilandcampus
Nieuwe Achtergracht 166
Amsterdam, 1018 WV
Netherlands

Petr Jansky

Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies ( email )

Opletalova St. 26
Prague, 11000
Czech Republic

HOME PAGE: http://ies.fsv.cuni.cz/en/staff/jansky

Sol Picciotto

ICTD ( email )

Institute of Development Studies
Librar
Brighton, BN1 9RE
United Kingdom

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