Debate on the US Tax Reform and the EU ATAD: The Proposal for a Global Minimum Tax: Comeback of Residence Taxation in the Digital Era?: Comment on Can GILTI + BEAT = GLOBE?

Abstract

While the political and academic debate on how to address the tax challenges raised by the digitalized economy has been revolving predominantly around extending the right to tax of the source/market state, the most recent proposal - a global minimum tax - chooses a very different path. The idea of a global minimum tax system is to ensure a certain minimum level of taxation through strengthened CFC- and anti-base erosion rules; the underlying policy agenda being that zero or overall low taxation should not only be mitigated by granting more taxing rights to source/market states but by strengthening the residual taxing right of resident states. So far, technical details on how such a system should look like are still missing. Behind this background, the question has been raised in literature whether the US GILTI- and BEAT-rules, introduced in the course of the 2017 US tax reform, could serve as a blueprint for global reform. Taking both GILTI and BEAT as a starting point, this paper tries to develop a tentative tax policy decision tree highlighting crucial conceptual, technical and political issues legislators will have to find solutions for, when implementing such a global minimum tax regime. In doing so, the paper claims that a specific (BEAT-like) outbound regime supplementing the regime’s inbound prong (i.e. GILTI-like rules) might be obsolete insofar as both overlap. An unaligned and parallel application of both, inbound and outbound elements, inherently leads to double taxation. From a policy perspective the implementation of a global minimum tax system along the lines of GILTI and BEAT would have two noteworthy side effects: not only would it mean a significant shift to the credit method and hence capital export neutrality, but would - as the name 'minimum tax system' indicates - also potentially mean the end of preferential regime for income from intangibles, e.g. patent boxes; a somewhat ironic effect considering that the third major change to the US international tax rules put into place in 2017, the Foreign Derived Intangible Income (FDII) rules introduced exactly such a preferential system. Moreover, the inherently unilateral nature of the rules such a global minimum tax system would be based upon (i.e. CFC- and anti-base erosion rules) would arguably decrease the relevance of tax treaties and lead to the problem that the existing treaty based mechanism for dispute resolution might become ineffective. Last but not least, implementing a minimum tax regime would require diligent manoeuvering around significant EU law concerns.