Global Tax Research Articles

Taxation models for international groups of companies

Taxation of international groups of companies can be based on two models: These are: 1) unitary taxation, whichinvolves determining the income of the group as a whole and then dividing it between individual companies, 2)separate entity taxation, which involves each entity being taken into account separately and its income beingdetermined as if it were an independent entity. In practice, it was decided to choose separate entity taxation, whichresulted in legislation on transfer pricing. However, using this model did not protect against tax optimization usedby international groups of companies, which prompted the OECD and the EU to take various actions to combat it.The latest initiative in the area of taxation of international groups of companies is the global minimum tax model.Its essence comes down to charging an additional amount of tax if the effective tax rate in a given tax jurisdictionis lower than 15%. In Poland, this model has not yet been implemented, it will most likely happen from 2025, hencethe lack of practical experience with its application

Research on the Inhibitory Effect of the EU’s Carbon Border Adjustment Mechanism on Carbon Leakage

Associated with more ambitious targets for reducing emissions, the European Union (EU) plans to implement the Carbon Border Adjustment Mechanism (CBAM) fully in 2026, aiming to reduce carbon leakage and competitiveness concerns by imposing tariffs on carbon-intensive imports, which is expected to significantly impact its trade partners. Existing research has focused on CBAM’s impact on macroeconomic indicators but has insufficiently addressed its effects on global and regional carbon leakage, especially in non-EU countries like China. This research offers a detailed analysis of industry-specific leakage rates and integrates both global and regional impacts by employing the dynamic recursive GTAP-E general equilibrium model to numerically simulate CBAM’s inhibitory effect on carbon leakage under different carbon tariff scenarios, while also exploring the synergistic effects of anti-leakage policies in non-EU countries. Our simulations indicate the following: (1) CBAM effectively inhibits carbon leakage, with greater inhibition observed at higher tax rates and with the expansion of covered industries. (2) Establishing China’s domestic carbon market pricing can further reduce regional carbon leakage rates. Implementing global export carbon tax policies will significantly diminish the risk of global carbon leakage. (3) The implementation of CBAM is projected to reduce China’s total exports to the EU, though this loss will be partly offset by trade diversion effects. Carbon-intensive industries are more adversely affected in the short term, while all industries except fossil fuels face inevitable long-term negative impacts.

The Impact of the Global Minimum Tax Reform on China and Its Countermeasures

Abstract Significant corporate tax reform was agreed upon by more than 140 nations in 2021, with implementation set for 2023 and beyond. Many people throughout the globe are discussing the possible effects of the Organization for Economic Cooperation and Development (OECD) planned adjustment to the global minimum tax (GMT) on their respective economies. The OECD has formulated a “two-pillar” scheme for international tax rules for 137 countries and regions within the overall framework. Pillar 2 is to set the tax rate at 15%, the world’s lowest corporate tax. The GMT is a reclassification of the taxing authority mechanism for the profits of multinational corporations, which has made significant adjustments to the global tax coordination and governance mechanism. People living in China and earning money from China must pay university fees, which are all of a nationality. Progressive rates ranging from 3 to 45% apply to the complete income. Therefore, taking the initiative in policy is crucial to address this challenge actively. This article makes an in-depth assessment and prediction of the impact of the GMT reform on China’s tax system and enterprises and proposes countermeasures. However, approximately 20% of the earnings can be exposed to the 15% tax rate that governments can apply. If the entire process is mixed in tandem, the tax rate equals 0.2%. Hence, an important amount of tax revenue can proceed down the drain. From the numerical outcomes, the minimum tax with jurisdictional blending was set at 12.5% under Pillar 2; the disparity between the sample’s top and lowest EATRs would decrease by 2.8% points.

Global Tax Trends and Transformations: A Literature Review on Change and Adaptation

Global Tax Trends and Transformations: A Literature Review on Change and Adaptation

Toward a Global Minimum Tax on Ultra-High-Net-Worth Individuals?

Toward a Global Minimum Tax on Ultra-High-Net-Worth Individuals?

Does Income Tax Competition Remain Relevant In Attracting FDI? The Case of ASEAN Countries

This study evaluates the impact of corporate income tax on foreign direct investment (FDI) in 6 Southeast Asian countries from 1999 to 2022, under the context of the preparation for the Global minimum tax application in many countries in and outside the region. Using classical panel data models (Fixed Effects and Random Effects model), the findings show no significant impact of corporate income tax on FDI inflows to ASEAN nations. Observing the effects of other factors on foreign investments, the study discovers the significant role of infrastructure in attracting FDI for the entire sample. Additionally, we find significant positive impacts of trade openness and significant negative impacts of political stability on FDI inflows for the developing nations in the area. Interestingly, we find positive relationships between economic shocks and FDI and the region's quick recovery of foreign investment flows. Based on the results, we provide several valuable academic and policy suggestions.

Corporate taxation in Spain: analyzing efficiency and revenue potential

This paper offers a comprehensive analysis of Spain’s corporate tax system through the lens of the Laffer curve and Buoyancy index, assessing its efficiency in generating revenue. The study finds that Spain is nearing the Laffer curve’s optimal tax rate, beyond which tax revenue may decrease with rate hikes. The Buoyancy index reveals a fluctuating response of tax revenues to economic shifts, indicating vulnerability in economic downturns. We trace Spain’s corporate tax evolution, examining current structures and recent policy reforms, and explore how corporate taxation influences economic activities and investment. The paper proposes policy recommendations, including reassessing the corporate tax rate, advocating structural reforms for a wider tax base, and policies promoting economic growth. Emphasis is placed on counter-cyclical fiscal policies, regular evaluation of tax incentives, improving tax compliance, and Spain’s role in global tax coordination. This research contributes to fiscal policy discussions, advocating a balanced tax approach for sustainable economic development and guiding policymakers toward resilient fiscal strategies in a dynamic economic environment.

Globalization and taxation: Implications on national tax policies and international tax competition

This review examines the profound impact of globalization on national tax policies and the ensuing tax competition among countries. Globalization, characterized by increased economic integration and cross-border capital and labor mobility, has significantly influenced national tax structures and policies. Countries are compelled to adapt their tax systems to remain competitive in attracting and retaining investments, leading to a shift from traditional income taxes to consumption-based taxes and adjustments in corporate tax rates. This competition often results in a "race to the bottom," where countries continuously lower tax rates to outbid each other, thereby affecting government revenues and public service funding. The review explores how globalization erodes traditional tax bases, creating challenges for national policymakers who must balance the need for competitiveness with revenue requirements and equity considerations. Through case studies, the effects of tax competition are analyzed, highlighting the outcomes of various national strategies in attracting global capital. Additionally, the role of international tax treaties and agreements in shaping global taxation dynamics is scrutinized. Treaties aimed at avoiding double taxation and preventing tax evasion, such as those orchestrated by the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, and EU tax policies, are pivotal in harmonizing tax rules and reducing tax arbitrage opportunities. These agreements foster international cooperation, attempting to create a more stable and fair global tax environment. The interaction between national tax policies and global agreements is complex, involving coordination and occasional conflict. The effectiveness of these international efforts in addressing the challenges posed by globalization is assessed, considering both successes and limitations. Emerging trends, such as the taxation of the digital economy and the increasing involvement of developing countries in global tax discussions, are also explored. The review provides insights into the dynamic interplay between globalization and taxation, offering recommendations for policymakers to navigate the intricate global tax landscape. Future challenges and opportunities are discussed, emphasizing the need for continued international cooperation and adaptive national policies. Keywords: Globalization, National Tax Policies, Tax Competition.

How feasible is it to mobilize $31 billion a year for pandemic preparedness and response? An economic growth modelling analysis

BackgroundCovid-19 has reinforced health and economic cases for investing in pandemic preparedness and response (PPR). The World Bank and World Health Organization (WHO) propose that low- and middle-income governments and donor countries should invest $31.1 billion each year for PPR. We analyse, based on the projected economic growth of countries between 2022 and 2027, how likely it is that low- and middle-income country governments and donors can mobilize the estimated funding.MethodsWe modelled trends in economic growth to project domestic health spending by low- and middle-income governments and official development assistance (ODA) by donors for years 2022 to 2027. We modelled two scenarios for countries and donors – a constant and an optimistic scenario. Under the constant scenario we assume that countries and donors continue to dedicate the same proportion of their health spending and ODA as a share of gross domestic product (GDP) and gross national income (GNI), respectively, as they did during baseline (the latest year for which data are available). In the optimistic scenario, we assume a yearly increase of 2.5% in health spending as a share of GDP for countries and ODA as a share of GNI for donors.FindingsOur analysis shows that low-income countries would need to invest on average 37%, lower-middle income countries 9%, and upper-middle income countries 1%, of their total health spending on PPR each year under the constant scenario to meet the World Bank WHO targets. Donors would need to allocate on average 8% of their total ODA across all sectors to PPR each year to meet their target.ConclusionsThe World Bank WHO targets for PPR will not be met unless low- and middle-income governments and donors spend a much higher share of their funding on PPR. Even under optimistic growth scenarios, low-income and lower-middle income countries will require increased support from global health donors. The donor target cannot be met using the yearly increase in ODA under any scenario. If the country and donor targets are not met, the highest-impact health security measures need to be prioritized for funding. Alternative sources of PPR financing could include global taxation (e.g., on financial transactions, carbon, or airline flights), cancelling debt, and addressing illicit financial flows. There is also a need for continued work on estimating current PPR costs and funding requirements in order to arrive at more enduring and reliable estimates.

Towards a new architecture for progressive international capital taxation

The application and operation of the Global Anti-Base Erosion (GloBE) Rules agreed at the OECD and released in December 2021 have both strengths and weaknesses for developing countries. Now is the time to address directly the multilateral institutional "architecture" in relation to international tax negotiations. Despite the current geopolitical tensions, the nature of climate change and increased possibility of future health pandemics have made the need for global public goods provision – and thus global tax coordination – even more necessary. Moreover, the GloBe rules reflect the underrepresentation of non-OECD members in the process of the "Inclusive Framework," as evidenced by their absence in key committee leadership, paucity of specialised delegates and lack of explicit voting rights. Therefore, it is correct to welcome the recent UN resolution to work towards a worldwide Tax Convention.

International enforcement of cryptocurrency laws: Jurisdictional challenges and collaborative solutions

The rise of cryptocurrencies has presented new challenges for regulators around the world, particularly in terms of enforcement across international borders. This abstract explores the jurisdictional challenges faced by authorities in enforcing cryptocurrency laws and proposes collaborative solutions to address these challenges. Cryptocurrencies operate on a decentralized network, making them difficult to regulate within traditional legal frameworks. Jurisdictional issues arise when a cryptocurrency transaction involves parties in different countries, as it is often unclear which jurisdiction's laws apply. This ambiguity can lead to regulatory gaps and enforcement challenges, allowing illicit activities such as money laundering and terrorism financing to flourish. To address these challenges, collaborative solutions are needed. International cooperation between regulators, law enforcement agencies, and industry stakeholders is essential to ensure effective enforcement of cryptocurrency laws. This cooperation can take various forms, including information sharing, joint investigations, and the development of common regulatory standards. One example of successful collaboration is the Financial Action Task Force (FATF), an intergovernmental organization that sets standards for combating money laundering and terrorism financing. The FATF's guidance on virtual assets and virtual asset service providers has helped to clarify regulatory expectations and promote consistency in enforcement efforts across jurisdictions. Another example is the Joint Chiefs of Global Tax Enforcement (J5), a coalition of tax authorities from five countries that work together to combat international tax evasion. The J5's focus on cryptocurrency-related tax crimes highlights the importance of cross-border cooperation in tackling cryptocurrency-related illicit activities. In conclusion, while jurisdictional challenges remain a significant hurdle in the enforcement of cryptocurrency laws, collaborative solutions offer a path forward. By working together, regulators, law enforcement agencies, and industry stakeholders can address these challenges and ensure that the benefits of cryptocurrencies are realized while mitigating their risks.

Global Minimum Taxation: A Strategic Approach for Developing Countries

The world has seemingly embraced the altruistic idea of ensuring a minimum level of corporate income taxation worldwide, consolidating a “benefits for all” narrative by which both developed and developing countries apparently gain. However, this altruistic narrative proves to be quite unrealistic for many developing countries. As argued in this article, the perceived benefits of a global minimum corporate income tax in developing countries rest exclusively upon three unconvincing premises. These include the assumption that all corporate income tax incentives provided by developing countries are equally inefficient, the idea that all developing countries can seamlessly transition from corporate income tax competition to alternative forms of tax and non-tax competition, and most notably, the notion that supporting or opposing a global minimum corporate income tax could either boost or diminish tax revenue for developing countries. This article urges a departure from these premises and elaborates upon three strategic recommendations for developing countries, which include: first, viewing a global minimum corporate income tax as a concept divorced from the assumption of revenue gain or loss; second, using the global minimum corporate income tax as an opportunity to reassess their tax and non-tax incentives, encompassing alternative competitive strategies; and third, striving for simplicity and ease of administration in designing and implementing a minimum tax approach. In doing so, developing countries could perhaps find an opportunity to refine their general action plan to attract foreign direct investment (FDI) more effectively while they still try to ride the wave of minimum global corporate income taxation that the world seems to be in.

ПРО ЩО СВІДЧИТЬ 88-МЕ МІСЦЕ УКРАЇНИ В РЕЙТИНГУ ПРОЗОРОСТІ ПОДАТКОВИХ ВИТРАТ?

Introduction. The large absolute and relative volumes of tax expenditures in most countries that submit their reports to the Global Tax Expenditures Database, with insufficient transparency and heterogeneous quality of such reports, are convincing evidence of the need for close attention to them both by researchers and by governments and international organizations. The growing attention to tax expenditures at the international level is confirmed by the creation of the Global Tax Expenditures Database (GTED), and in 2023 – the ranking of countries in the context of the transparency of tax expenditures, measured according to the Global Tax Expenditures Transparency Index (GTETI), which aims to identify weaknesses in tax expenditures reports and direct efforts to eliminate them. Problem Statement. Ukraine belongs to the number of countries that submit their reports on tax benefits, which are losses of budget revenues (tax expenditures), to the GTED. Therefore, its reporting was subject to evaluation, which determined Ukraine's place in the tax expenditures transparency ranking. The purpose of the article is to familiarize the scientific community, government officials and policy makers in Ukraine with information on the tax expenditures transparency rating, as well as to reveal the reasons for the low quality of tax expenditures reports in Ukraine and to outline areas for their improvement. The methods of critical analysis, comparative and structural-functional analysis, analogies and theoretical generalization are used. Results. The article provides a detailed description of the GTETI and its five dimensions (parameters) that can be used to determine the quality of reports, as well as the results of ranking the EU countries and Ukraine according to the regularity, quality and scope of their tax expenditures reports. Ukraine took the 88th place in the ranking among 104 countries, having received 33,2 scores, which is 18,5 points below the average for EU countries. The country received the lowest scores – 3 and 4 – for the public availability of information on tax expenditures and for the methodology and scope of reporting, and the highest score – 12 – for the institutional framework. For the other two parameters – descriptive data on tax expenditures and tax expenditures assessment – Ukraine's indicators are not high, but do not differ significantly from the average for all countries in the ranking. The reasons for the low quality of tax expenditures reports in Ukraine in all parameters have been analyzed, which makes it possible to draw a conclusion that they need to be improved and the main directions for improvement are identified.

The Tax Attractiveness of EU Locations for Corporate Investments: A Stocktaking of Past Developments and Recent Reforms

Abstract In this paper, we illustrate the tax attractiveness of EU countries as investment locations over time in terms of effective average tax rates and evaluate potential tax reform options. Our quantitative assessment of recent tax policies suggests that corporate tax rate cuts, notional interest deductions and R&D incentives significantly reduce the effective average tax rate. When government budgets are constrained, however, tax incentives with a direct link to investment activities, such as accelerated depreciation and R&D incentives, are most suitable to stimulate private investment. Even after the introduction of the global minimum tax, these measures remain a viable tool to stimulate investments.

Tax havens reexamined: The impact of global digital tax reforms on international taxation

This review delves into the evolving landscape of tax havens in the wake of comprehensive digital tax reforms. This study scrutinizes the implications of global efforts to address tax evasion and profit shifting, particularly in the context of the digital economy. With the proliferation of digital services and cross-border transactions, traditional tax frameworks have struggled to capture the economic activities of multinational corporations operating in cyberspace. Consequently, tax havens have emerged as facilitators of aggressive tax planning strategies, exacerbating global tax inequalities and eroding fiscal sovereignty. Against this backdrop, the study analyzes the efficacy and repercussions of recent digital tax reforms spearheaded by international organizations and individual nations. It examines the implementation challenges, compliance burdens, and potential loopholes associated with these reforms. Moreover, the research evaluates the impact of digital tax measures on the behavior of multinational enterprises, exploring their responses in terms of tax planning strategies and business models. Furthermore, the study investigates the broader implications of digital tax reforms on international taxation dynamics, including their influence on tax competition, investment flows, and economic development. Special attention is paid to the implications for developing countries, which often bear the brunt of revenue losses resulting from profit shifting to tax havens. By synthesizing empirical evidence, policy analysis, and theoretical insights, this study offers a comprehensive reevaluation of tax havens in the digital age. It sheds light on the complex interplay between technological advancements, regulatory frameworks, and global economic dynamics shaping contemporary tax landscapes.

Outbound Profit Shifting and the Propensity to Engage in Cross‐Border Acquisitions

AbstractAccountability‐avoiding foreign direct investment (FDI) is a category of financial motives explaining where firms invest and how, yet our grasp of this phenomenon is incomplete. In contrast with tax‐haven FDI, where multinational enterprises (MNEs) invest in a host country to pursue inbound profit shifting, we consider a novel motive – FDI attracted by low host country financial transparency that enables outbound profit shifting (OPS). Cross‐border acquisitions (CBAs) are a takeover route to achieving OPS and global tax optimization. Our empirical context is 39,951 CBAs by 315 acquirers from 26 countries in the 1996–2015 period. We hypothesize and empirically show a positive relationship between OPS and CBAs and the probability that equity ownership of CBAs will be high. We find that the relationship between OPS and CBAs is stronger the more attractive or income unequal the host market, or when the multinational's industry is vertically or horizontally integrated. We attribute the lack of support for our hypothesis that MNEs require in‐house capability to conduct OPS to tax planning consultancies’ services. These findings highlight the role of low financial transparency as a novel locational determinant of OPS‐pursuing FDI and emphasize the distinction between inbound and outbound profit shifting as manifestations of accountability‐avoiding FDI.

Global Goods and Services Tax: A Macro-Economic Perspective

This article provides a comprehensive analysis of the global implementation of Goods and Services Tax (GST) to understand the diverse GST models adopted and examine their impact on key economic indicators. Through a detailed analysis of GST frameworks in selected countries such as Australia, Canada, India, Maldives, New Zealand and Singapore. The study analyses common trends and differences in tax structures, registration processes and the treatment of exempted goods and services. The findings of the study reveal a consistent pattern of increased tax revenue and GDP growth post-implementation of GST. Additionally, the study explores the impact of GST on trade dynamics, employment levels, foreign direct investment (FDI) inflows and savings rates across these nations. While the impact on inflation varies among the countries. Overall, the findings highlight the importance of well-planned implementation of GST as it is a crucial tax reform contributing to economic growth and stability on a global scale.

Tax expenditures and progress to the Sustainable Development Goals

AbstractThis study reports the impact of governments having additional revenue equivalent to tax expenditures on achieving the Sustainable Development Goals in 97 countries. The study draws data on revenue foregone from the Global Tax Expenditure Database. To analyze the potential of an increase in government revenue equivalent to the revenue foregone, the study uses the Government Revenue and Development Estimations modeling. The study finds that if governments had additional revenue equivalent to tax expenditures: an additional 17 million children would attend school (13.62% currently out of school), an additional 70 million people would use basic water (23% of those without access), 146 million would use basic sanitation (20% of those without access), 181,000 children would survive (13% of children who currently die), and 12,000 mothers would survive (16% of mothers who currently die). Critically, there would be improvements in governance indicators in all regions. Foregone revenue from tax expenditures could increase access to public services for millions, which is the most effective tool for reducing inequality and driving progress toward sustainable development. The massive opportunity costs reported here require all governments to report and justify their annual tax expenditure.

How Can Regional Cooperation Help the Enhancement of Regional Economic Development and Strengthen the Voices of Developing Countries in Global Tax Negotiations?

How Can Regional Cooperation Help the Enhancement of Regional Economic Development and Strengthen the Voices of Developing Countries in Global Tax Negotiations?

Global corporate income tax competition, knowledge spillover, and growth

Using a two-country model of endogenous growth with international knowledge spillovers, this study analyzes the welfare consequences of global corporate income tax competition. Although the Nash equilibrium tax rate can be excessively high or low according to the degree of spillover, this does not lead to significant welfare losses. The key to this outcome is that corporate income tax competition for growth maximization, which we consider hypothetically, attains the maximum growth rate despite complex externalities and strategic interactions.