Pillar 2 and the Credits

14 Pages Posted: 3 Jul 2023

Date Written: June 18, 2023

Abstract

US critics of Pillar 2 of the OECD BEPS 2.0 project have focused on the impact of the UTPR on tax credits such as the ones included in the Inflation Reduction Act and the CHIPS Act. In fact, those credits are unlikely to be affected because they are refundable. But this raises the broader question of why the line between qualifying and non-qualifying credits should be drawn at refundability. This paper addresses this question and argues that while refundability is a reasonable proxy, the line is intended to distinguish between tax expenditures that merely shift the location of investments that would be made somewhere in any case, and tax expenditures that address a market failure and therefore would not be made but for the subsidy. It would be better if the OECD made this explicit and subjected tax expenditures to a peer review that is not focused solely on refundability.

Keywords: Pillar 2, Credits

JEL Classification: H26

Suggested Citation

Avi-Yonah, Reuven S., Pillar 2 and the Credits (June 18, 2023). Available at SSRN: https://ssrn.com/abstract=4488923 or http://dx.doi.org/10.2139/ssrn.4488923

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

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