The Effects of a Global Minimum Tax on Corporate Balance Sheets and Real Activities: Evidence from the Insurance Industry

Abstract

How do global minimum taxes affect corporate balance sheets and real activities? I study this question using the introduction of the base erosion and anti-abuse tax (BEAT) on multinational insurance companies operating in the US. I find that the BEAT implementation significantly changed the internal capital allocation of insurers, increased global risk-sharing, and increased product prices in the US. I document three main sets of findings. First, the global minimum tax significantly changed the internal capital allocation of insurance companies and decreased the amount of transfer payments of US insurers to their foreign affiliates by 59%, or $30 billion per year. The changes in allocation were primarily driven by foreign-domiciled insurance groups and insurance groups which used foreign affiliates more extensively prior to the tax reform. Second, the tax increased global risk-sharing, inducing insurers to diversify more risk with external counterparties. Revealed-preference estimates suggest that the total increase in risk-sharing is worth $1.9 billion per year for insurers, equal to 2.9% of insurers’ total net income. Third, insurance companies affected by the minimum tax increased policy prices by 1.03% relative to not-affected insurers.

Keywords: Tax, insurance

JEL Classification: G20, G22, G28, H20