Measuring the Effects of the Global Tax Reform - Evidence from High-frequency Data
47 Pages Posted: 11 Mar 2022
Date Written: March 8, 2022
Over 140 countries agreed on a fundamental global corporate tax reform in 2021. The new framework includes a consumer-location-based profit taxation (Pillar 1) and a global minimum tax rate of 15% (Pillar 2). Using high-frequency asset price movements around the main events of the reform's consensus process, we identify heterogeneous effects on individual companies' and industries' valuations as well as on countries' public finances. We document that the stock prices of companies with a high share of foreign earnings and high levels of intangible assets like Apple Inc. and Alphabet Inc. drop significantly within minutes after the regulatory events. The price responses are persistent and grow in magnitude when focusing on longer time windows. At the country level, we document significant increases in credit default risk for countries like Ireland, Luxembourg, or small tax havens which attract disproportionately large amounts of companies' profits under the current tax system. Collectively, our findings suggest that market participants expect the reform to impose significant costs on companies that pay relatively low taxes under the current system and reallocate a significant share of global corporate tax revenues to less developed countries with large consumer markets.
Keywords: Tax Reform, Tax Competition, High-frequency Identification, Asset Pricing, Price Discovery
JEL Classification: H26, H32, F30, F42, G12, G14
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