Impacts of New International Tax System on Multinational Firms’ FDI

9 Pages Posted: 1 Jun 2022

See all articles by Sangjun Yea

Sangjun Yea

Korea Institute for International Economic Policy

Date Written: April 28, 2022

Abstract

In this study, I present a theoretical model to quantitatively assess the economics impact of Pillar 1 and Pillar 2, especially focusing on the changes in the FDI patterns of multinational enterprises (MNEs). Pillar 1 offsets the incentives of MNEs' profits-shifting for tax-planning purposes, thereby reducing the inbound FDI into the countries with low corporate income tax rates. Pillar 2 burdens MNEs with 'top-up' taxes attributed from the subsidiaries in low tax countries. As the profits after tax (PAT) of MNEs shrink at the global level, innovation and R&D investment for new products will decrease, and as a result, global FDI flows will hamper.

Suggested Citation

Yea, Sangjun, Impacts of New International Tax System on Multinational Firms’ FDI (April 28, 2022). KIEP Research Paper, World Economy Brief 22-17, Available at SSRN: https://ssrn.com/abstract=4122482 or http://dx.doi.org/10.2139/ssrn.4122482

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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