New International Tax System and Global Investment
3 Pages Posted: 11 Feb 2022
Date Written: January 19, 2022
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.
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