Global Tax Research Articles

Bermuda: A Canary in the Pillar Two Coal Mine

At the beginning of the 20th century, miners began bringing a canary into the mines, to serve as an early warning sign of danger from toxic gases. The phrase “canary in the coal mine” has since been used to indicate potential success or failure. Bermuda, one of seven low- or no-tax Caribbean jurisdictions, has begun consultations on adopting a corporate income tax in 2025. Carissa Rodulfo examines whether Bermuda’s experience might serve as a canary in the coal mine, when it comes to developing nations adopting the Pillar Two global minimum tax.

Scope, Mergers and Demergers in the G20/OECD Global Minimum Tax (GloBE) Rules

In this article, the author examines the implications of the G20/OECD Global Minimum Tax (GloBE) Rules in relation to their scope, and mergers and demergers in an EU and a worldwide context, with emphasis on the specific rules that will be implemented in Germany, the Netherlands and the United Kingdom.

Global taxation of electronic nicotine and non-nicotine delivery systems: a cross-country evaluation

BackgroundTaxation is a key component of tobacco products’ regulation given its proven effectiveness to generate revenue and achieve public health goals. The diversity of the market for e-cigarettes (electronic nicotine...

The fiscal implications of stringent climate policy

Stringent climate policy compatible with the targets of the 2015 Paris Agreement would pose a substantial fiscal challenge. Reducing carbon dioxide emissions by 95% or more by 2050 would raise 7% (1%–17%) of GDP in carbon tax revenue, half of current, global tax revenue. Revenues are relatively larger in poorer regions. Subsidies for carbon dioxide sequestration would amount to 6.6% (0.3–7.1%) of GDP. These numbers are conservative as they were estimated using models that assume first-best climate policy implementation and ignore the costs of raising revenue. The fiscal challenge rapidly shrinks if emission targets are relaxed.

A cultural levy or a digital streaming service tax: New film industry levies conflicting with the EU member states’s bilateral tax treaty obligations and OECD digital tax agreements?

This note highlights the obstacles that the film levy, as a form of financial contributions on video on demand (VoD) service providers under Article 13(2) of the 2018 EU Audiovisual Media Service Directive, may face in a cross-border context from an international tax perspective. In particular, the first obstacle is that the double tax treaties of member states exclude the possibility to levy income taxes on a foreign VoD service provider if it has no fixed and permanent presence, for example, an office, in the country. Second, the new global tax agreement on addressing the tax challenges of digitalization demands its parties (137 countries) to remove all unilateral domestic taxes on all digital services and all companies.

International legal system for combating money laundering and unfair tax competition

Worldwide efforts to eliminate bank secrecy and foster transparency in international currency flows have accelerated significantly in recent years. The identification of tax havens and potentially harmful tax practices and regimes gives rise to a considerable potential for preventing distortions and violations that could undermine the benefits of enhanced capital mobility in today’s global economy. In the light of the aforementioned, the aim of this article is to detail: 1. efforts of the Organization for Economic Cooperation and Development (OECD) to eliminate «unfair tax competition»; 2. efforts of the Financial Action Task Force on Money Laundering (FATF) to reduce international money laundering; 3. steps being taken in the European Union (EU) to combat money laundering and tax evasion. The author analyzes the OECD's efforts to create a firm international platform for global tax information exchange. The Article also touches upon the FATF initiatives to combat money laundering: a) the FATF Forty Recommendations setting out a comprehensive and consistent framework of international standards which countries should implement in order to combat money laundering and terrorist financing; b) identification of jurisdictions which have the substantial and on-going money laundering and terrorist financing risks and strategic deficiencies; c) inclusion of certain anti-money laundering recommendations applicable to business and professions beyond the financial services industry; d) ongoing investigations of compliance with the Forty Recommendations by FATF members and by other states (mutual evaluations); e) helping national governments and financial institutions to ensure adequate and accurate information on the beneficial ownership. In the last part of the Article, the author analyses enforcement measures to combat money laundering adopted in the EU that go further beyond FATF recommendations.

TAX AUDIT TO ENSURE BUSINESS PROSPERITY: TRENDS AND PERSPECTIVES

The study identifies key trends impacting the business services industry in 2023, including the strong post-pandemic recovery of demand, increased demand for recruitment services, and increased funding for R&D. The research highlights the growing importance of tax audit in the business development process, as evidenced by the increasing share of advisory audit services and tax consulting in the global market. The study presents the global tax audit turnover, indicating its growth and popularity in the business services industry. The research examines the fastest-growing business services markets, with China being the fastest-growing market in terms of absolute and CAGR growth. The study discusses the dominance of accounting and audit companies in the top 10 list of leading companies in the business services industry, emphasizing the significance of audit, tax, and advisory services. The research emphasizes the need for tax audit services in the current business environment, where constant changes and increasing information turnover make it challenging for businesses to adapt. The research highlights the importance of tax audit in financial control for business owners and international companies operating in Ukraine, as well as its role in tax optimization and planning. The study identifies business trends that require auditors to be prepared to provide tax audit and tax optimization services, including the adoption of automation and artificial intelligence, personalized offers, and the adoption of value-based business models. The scientific novelty of the study lies in its comprehensive analysis of the current state and future trends in the business services industry, with a specific focus on tax audits. The study provides insights into the growing demand for tax audit services, the challenges and opportunities in the industry, and the potential for tax optimization and planning. It contributes to the existing literature by highlighting the significance of tax audits in ensuring business prosperity and offering recommendations for improving the organizational and methodological aspects of tax audits in the business services sector.

Global Minimum Tax Reform and the Future of Tax Competition

This article focuses on the effects of global minimum tax reform on tax competition. It also discusses whether the new tax competition landscape will become more equitable and efficient, and, if not, how the OECD’s Inclusive Framework can better address these problems in the future.

The economics of the global minimum tax

This paper shows that OECD’s Pillar Two may increase employment and investment in low-tax countries due to the Substance-based Income Exclusion (SBIE). The SBIE allows to tax-deduct payroll costs and user costs of tangible assets twice from the tax base of the top-up tax owed by subsidiaries in low-tax countries. Consequently, it implies that a 15% minimum corporate tax for low-taxed subsidiaries is not achieved if the SBIE is positive. We show that Pillar Two dampens tax-motivated transfer pricing, but changes the employment, investment and import incentives, and that for a sufficiently large cost share of labor and/or capital, the SBIE is equivalent to a production subsidy.

Pareto-improving minimum corporate taxation

The international agreement on a minimum effective corporate tax rate, implementation of which is imminent, marks a profound change in global tax arrangements. The appropriate level of that minimum, however, has been, and remains, extremely contentious. This paper explores the strategic responses to a minimum tax, which – the policy objective being to change the rules of the tax competition game – are critical for assessing the design and welfare impact of this fundamental policy innovation. Analysis and calibration plausibly suggest sizable scope for minima that are Pareto-improving, benefiting low tax countries as well as high, relative to the uncoordinated equilibrium.

The International Application and Development Prospect of the Principle Purpose Test Clause

Abuse of tax treaties by taxpayers through various means has become increasingly rampant, infringing on the tax base of each country. The OECD has formulated the PPT rule in order to protect global tax order. The main content of the rule is: a tax benefit shall not be granted if obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit. The PPT rule is favored by countries for its simplicity, and it gradually developed into one of the most important rules in the anti-abuse system. However, there are many problems in the current application of the rule. This paper begins with a description of the concept of the PPT rule and three points of contention, followed by an analysis of the application of the PPT rule in the domestic laws of four countries and the problems that exist globally. Finally, this paper puts forward three recommendations that are relevant to the future development of the PPT rule.

Macroeconomic policy and policy spaces during the COVID-19 pandemic – case studies from Germany, Brazil and India

Theoretical analysis, empirical development and case studies show that room to manoeuvre stabilising macroeconomic policies during the COVID-19 crisis in the years 2020 and 2021 were fundamentally different in the Global South and Global North. The latter used extensive discretionary fiscal and monetary policy, whereas the former used monetary policy only in a very limited way and fiscal policy to a much smaller extent than in the Global North. While the main reason for this difference is, inter alia, the position of countries in the global hierarchy of currencies, the political orientation of governments in general and towards COVID-19 also played a significant role. The income effects of the pandemic for the poor in Germany were moderate, but disastrous in the Global South, as evidenced by case studies on Brazil and especially India. As a result, the global pandemic added to the trend of increasing inequalities in income and wealth distribution, both within and between countries. Some shortcomings of policies during the pandemic include not raising taxes on higher income or wealth groups, implementing steps towards a global tax system or supporting international capital controls to increase the space for national policies.

The pending commitment and ongoing political divide on carbon pricing in Japan

ABSTRACT New discussions on carbon pricing are underway in Japan. In 2012, Japan introduced a nationwide carbon tax named the Global Warming Countermeasure Tax. However, a gap remains between the price level set by this tax and the levels needed for Japan to achieve its 2050 carbon neutrality goal. Combining perspectives from an Advocacy Coalition Framework (ACF) with insights on brokerage mechanisms in social network analysis (SNA), this study reviews the history of the carbon pricing debate in Japan and also analyzes the dynamics between different advocacy coalitions in the policy network. The evolution of the carbon-pricing debate in Japan is divided into four historical stages: (I) the first attempt to establish a carbon pricing system (from the early 2000s to 2015); (II) fierce debate on the necessity of readjusting the carbon pricing system (from 2016 to 2017); (III) efforts to sustain the carbon pricing discussion (from 2017 to 2019); and (IV) the reopened discussion on carbon pricing under new climate pledge (from 2020 to 2021). The unbridgeable gap between advocacy coalitions and the subsequent long-lasting political stalemate on carbon pricing, to some extent, reflects limited policy learning and related capacities that are deeply entrenched in Japan’s vertically segmented bureaucracy. Barriers and challenges to advancing carbon pricing decisions are discussed together with recommendations on how to create better brokerage mechanisms to strengthen communication, facilitate policy learning and ultimately improve policy decisions.

From tax havens to cryptocurrencies: secrecy-seeking capital in the global economy

The global backlash against tax havens has pushed secrecy-seeking capital to explore alternative opportunities in non-tax-haven countries and new financial technologies (FinTech). We identify two major corporate practices—organizational ring-fencing and swarming—that have enabled secrecy-seeking capital to adapt to new regulatory realities and illustrate these practices empirically with the extreme case of Estonia. In the 2010s, several Nordic banks turned their Estonian offices into hotbeds of high-risk transactions, ring-fencing their Baltic affiliates from their group-level systems and generating several money laundering scandals with global repercussions. More recently, secrecy-seeking capital ‘swarmed’ into Estonia’s large cryptocurrency sector and thereby thwarted effective supervision of the activities of the firms involved. Neither swarming nor organizational ring-fencing have been sufficiently explained by existing approaches in International Political Economy (IPE) as new core practices of secrecy-seeking capital. We study both practices in a mixed-methods research design and provide novel empirical insights to illuminate this phenomenon. In filling this gap, our study paves the way for a second generation of global tax governance scholarship amidst the cryptocurrency and FinTech boom, and calls for a research agenda that addresses these new practices that take advantage of the lack of administrative capabilities in non-tax-haven jurisdictions.

The Legitimacy Of The Oecd’S Work On Pillar Two: An Analysis Of The Overconfidence In A ‘Devilish Logic

The objective of this contribution is to analyse the legitimacy of the OECD’s work on Pillar Two. The starting point is that the effectiveness of the new global minimum tax is clearly based on its so-called ‘devilish logic’. As such the project relies heavily on expert knowledge that is supposed to guarantee output legitimacy. At the same time, the consensus reached in the Inclusive Framework (IF) is supposed to bless the global minimum tax with a form of input legitimacy. Nevertheless, the contribution comes to the conclusion that the legitimacy of the OECD’s work on Pillar Two is falling short. The central point is that the governance process of the OECD should meet burdensome standards of ‘good’ governance including accountability (i.e., throughput legitimacy). Unfortunately, the political accountability and the technical accountability of the work on Pillar Two were clearly insufficient. The OECD, and the Centre for Tax Policy and Administration (CTPA) in particular, was not appropriately operating ‘in the shadow of politics’ and the ingenious solutions of the global minimum tax were not sufficiently scrutinized by independent technical experts. As a result of these shortcomings, the legitimacy of the work on Pillar Two eventually relied too strongly on expert knowledge (the ‘devilish logic’) and therefore on output legitimacy only. This conclusion illustrates once more the urgent need to rethink the legitimacy of international tax governance in general and the role of the OECD in particular. Pillar Two, global minimum tax, legitimacy, expert knowledge, accountability, OECD, international tax governance, United Nations

MNEs' Incentives Under a Global Minimum Tax Based on Accounting Standards

The Organisation for Economic Co-operation and Development has proposed a pillar two global minimum tax (GMT) for which the tax base is the jurisdiction-specific effective tax rate (ETR), an accounting metric calculated under the rules of accrual accounting. History has shown that when tax is imposed on accounting numbers, taxpayers often use the discretion available in accounting to manage their tax liability. This paper argues that the discretion that multinational enterprises (MNEs) can exercise within accounting rules to change their ETRs will be limited because increasing ETR (to reduce GMT) also reduces accounting income, which in turn could impose higher financial reporting costs on firms. Financial reporting costs are the costs to firms of reporting lower accounting income, and could include higher borrowing costs or more restrictive covenants imposed by lenders. Firms generally prefer to report sustainable net incomes with a steady growth rate to impress their capital market stakeholders. Lower sustainable accounting income can also adversely impact a firm's stock price through the price-earnings ratio. While planning opportunities available to MNEs to avoid the GMT are not limited to shifting accounting profits across jurisdictions, the alternative of shifting factors of production is likely to be more complex and more expensive to implement, and is likely to remove some of the first-order income tax savings from locating intangible factors of production in low-tax jurisdictions. Avoiding GMT at the affiliate level by inflating ETRs could therefore conflict with firms' overarching objectives of maximizing reported earnings and stock prices. These objectives are also currently aligned with established executive compensation structures that motivate management to increase firms' stock prices.

International Collaboration in Times of Pandemics: An Urgent Need for Reforming our Global Financial System

Better, swifter and more responsive international coordination is needed within our global financial system for the containment of the pandemic and its effects. This requires better international tax coordination with a higher global minimum corporate tax, comprehensive coverage of sectors and firms, inclusion of all current tax havens and more generous redistribution of excess profits to developing nations based on user location. There also needs to be a more substantial and easier-to-access mechanism for debt relief and restructuring, one that generously suspends debt payments in periods of crises and provides financial support without strict and painful conditionalities.

Tax-Avoidance Networks and the Push for a “Historic” Global Tax Reform

Tax-Avoidance Networks and the Push for a “Historic” Global Tax Reform

Dividends, gains or losses on shares and the global minimum tax. Interaction and comparativa analysis with the Spanish participation exemption regime

La Directiva 2022/2523 ha instaurado en la UE el gravamen global mínimo acordado en el Pilar Dos de la OCDE, que incluye un tratamiento específico para dividendos y rentas por transmisión de participaciones. En particular, cuando se cumplan las condiciones previstas en la norma, estas rentas son obviadas en el análisis de la tributación del grupo. En la presente colaboración se examinan las circunstancias que determinan el ajuste de estas rentas, sus implicaciones materiales y su interacción con la exención del artículo 21 de la Ley del Impuesto sobre Sociedades.

What Do Hungary and the Developing World Have in Common?

Hungary’s 2022 veto (since withdrawn) of the European Union’s proposal to adopt the global minimum tax under Pillar 2 shone a spotlight on the principle of unanimity that guides tax policymaking within the 27-member union. Natalia Pushkareva examines how the system that empowered Hungary’s veto fits within the “winner’s curse”, a theory that explains auction behaviour, and a corollary, the “unilateralist’s curse”. She explains why in an organization like the European Union, requiring unanimity may result in some actors overvaluing the benefits of a proposed policy.