New International Tax System and Global Investment

3 Pages Posted: 11 Feb 2022

See all articles by Sangjun Yea

Sangjun Yea

Korea Institute for International Economic Policy

Date Written: January 19, 2022

Abstract

A new international tax system will emerge in accordance with the global tax deal proposed by the OECD/G20 Inclusive Framework agreed by 137 countries. This will affect investment decisions of multinational enterprises in the future. The introduction of Pillar 1 may reduce the incentives for global companies to shift profits for the purpose of tax avoidance, thereby inducing investment in high-taxation countries with low production costs. The introduction of Pillar 2 may increase the tax burden on companies, negatively affecting R&D investment and returns of foreign investment, and as a result, there is a possibility that global companies' foreign direct investment may shrink overall. Fiscal expenditure for the recovery of the global economy has increased in the context of the COVID-19 pandemic, and raising tax revenues could play a pivotal role in funding government schemes. However, in a long-term perspective, governments need to be cautious not to impose excessive tax burdens, which may undermine the competitiveness of global companies.

Suggested Citation

Yea, Sangjun, New International Tax System and Global Investment (January 19, 2022). KIEP Research Paper, KIEP Opinions No. 229, Available at SSRN: https://ssrn.com/abstract=4030461 or http://dx.doi.org/10.2139/ssrn.4030461

Sangjun Yea (Contact Author)

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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