Minimum Tax Research Articles

Environmental Policies and Tax Incentives in the Pillar Two Era: A Comparison of the EU and US Approaches

This article explores the interaction between global corporate taxes, specifically under the OECD’s Pillar Two, as implemented by the EU Minimum Taxation Directive (2022/2523) in the European Union and by the Corporate Minimum Tax (CAMT) in the United States, and fiscal incentives supporting environmental tax policies under the European Union’s Green Deal and the US Inflation Reduction Act (IRA). The article compares the EU and US approaches and reveals the impact on the investment strategies of MNEs, with a focus on the location of intangibles related to renewable energy technologies, as well as State aid considerations. The article proposes that, instead of marginalizing the green tax credits, they should be reshaped and made subject to a benchmark that supports sustainable innovation within the global tax framework.

Evaluating the Subject to Tax Rule in Nigeria: Implications, Challenges and Strategic Considerations Amid Global Tax Reforms

The OECD’s two-pillar solution addresses the tax challenges of digitalization, with the Subject to Tax Rule (STTR) and GloBE Rules ensuring minimum taxation. This article explores the application of the STTR in Nigeria, assessing its potential for generating revenue while considering the high costs of implementation and the country’s strategic alternatives.

Inter-Nation Equity And The Regulation of Tax Competition via the Global Minimum Tax Rule: A Case for Improvement

The Organization for Economic Co-operation and Development (OECD) is an institution that influences policymaking in international tax law, and it is changing the international tax architecture to deal with tax competition by encouraging countries to adopt a global minimum tax rule. This emerging rule – called Pillar Two in international tax circles – is inadequate for dealing with poverty and inequality in an asymmetrical global context. The rule is premised on the notion and argument that tax competition is a problem for international tax law. Notwithstanding, there is existing research and evidence to show that tax competition can also be a solution to the enormous challenge of poverty and inequality as it can have a redistributive effect. This is a valuable factor amid the inefficiently asymmetrical global society with extreme poverty in many countries and enormous wealth in a few others.This article submits that the Pillar Two minimum tax rule – the Global Anti-Base Erosion (GloBE) Rules encompassing the income inclusion rule (IIR), undertaxed payment/profit rule (UTPR), and qualified domestic minimum top-up tax (QDMTT) – should incorporate inter-nation equity to prevent exacerbating global inequality and poverty. Pillar Two intensifies these for at least two reasons: (1) it restricts the positive redistributive effects of tax competition on an inefficiently asymmetrical global society, and (2) it encourages tax competition more suited for high-income countries (HICs) and less suited for those that are low-income countries (LICs). There is latitude to incorporate a differentiated principle deriving from inter-nation equity into this new Pillar Two rule designed to regulate tax competition globally. This proposal requires that the emerging rule be disenabled in certain circumstances to enable LICs to choose whether to apply the rule without being worse off. The article’s proposal seeks to allow LICs room for effective tax competition needed to attain sustainable development goals.

The Pillar 2 Directive and the Qualified Domestic (Minimum) Top-up Tax Puzzle

The article argues for using a teleological interpretation of the Pillar 2 Directive to allow EU Member States to comply with Pillar 2’s soft law requirements for the qualified domestic minimum top-up tax (QDMTT) and its safe harbour (SH). This interpretation is necessary because the directive’s text is not aligned with certain requirements under Pillar 2 soft law since the directive was adopted before the Inclusive Framework issued any administrative guidance. Without the teleological interpretation, EU Member States cannot comply with the qualified domestic top-up tax (QDTT) requirements and, therefore, cannot attain its SH. This would decrease taxpayers’ legal certainty and undermine EU Member States’ fiscal interests.To pursue the argument, the article analyses Pillar 2’s soft law, i.e., the model rules, the commentary, and two sets of administrative guidance related to the QDMTT and its SH, and compares their provisions with the relevant provisions of the Pillar 2 Directive. Consequently, the study offers solutions to discrepancies between these two sets of rules and joins a broader discussion regarding the relationship between EU tax law and soft law.

Assessing the Impact of Foreign Direct Investment on Vietnam's Socioeconomic Development and Proposing Policy Recommendations

In recent years, Vietnam has emerged as one of the world's top 20 destinations for foreign direct investment (FDI). Since reforming its Foreign Investment Law in 1987 and joining the World Trade Organization (WTO) in 2007, the country has implemented numerous tax and investment procedure reforms. This influx of FDI has significantly boosted Vietnam's economic growth, job creation, and social welfare. However, challenges persist—complex legal procedures and weak links between FDI and domestic businesses have been ongoing issues for four decades. Moreover, new global economic trends such as the global minimum tax, sustainable development, digital transformation, and the shift towards a circular economy demand timely and appropriate government reforms. These reforms are crucial for developing suitable foreign investment policies and effective FDI attraction strategies. This article aims to examine Vietnam's current FDI landscape, assess its socio-economic impact in recent years, and propose recommendations for a more selective and effective FDI strategy moving forward.

Research on the Two-Pillar Solution and Its Implication

With the rapid development of economic globalization and digitalization, new business models are activating the world economy while exacerbating the remaining problems of base erosion and profit shifting (BEPS). In the face of intensifying international tax avoidance, The Organisation for Economic Co-operation and Development (OECD) has announced its Two-pillar solution to the international community, proposing a global minimum tax regime, which is effectively a coordination of global anti-tax avoidance measures. At present, Pillar 2 has come into effect, and Pillar 1 has also been opened for signature, marking the implementation stage of the two-pillar solution. In this paper, the two-pillar solution is the main research object. Firstly, from the perspective of large-scale tax avoidance by multinational corporations, this paper systematically analyzes the historical background of the introduction of the two-pillar solution of the OECD. After a detailed analysis of the provisions of the two-pillar solution, the existing institutional deficiencies and obstacles to its implementation are proposed. Finally, in response to the issues raised, practical recommendations are made that the elements of the two-pillar solution should aim to achieve general equity, balance the interests of developing countries and be in harmony with existing international tax policies. The governments should also optimize the structure of tax incentives.

THE ECONOMIC AND LEGAL NATURE OF THE MINIMUM TAX LIABILITY

The relevance of the study of the economic and legal nature of the minimum tax liability is due to several factors. Firstly, being relatively new for Ukraine, this type of tax has not yet been sufficiently studied by scholars. Secondly, due to the specifics of the object of taxation, the introduction of the minimum tax liability significantly affects the taxation of farmers – owners of agricultural land and land users, producers of agricultural products, who are among the most vulnerable segments of the population. Thirdly, such a reform of the tax burden on business entities in agriculture, as one of the sectors most affected by Russia's armed aggression, requires a thorough analysis of its timeliness and appropriateness. This necessitates a study of theoretical and practical aspects, potential risks of introducing the minimum tax liability, as well as the formulation of proposals for solving problematic issues in this area, which is the purpose of the study. The research methodology includes a number of methods of scientific knowledge: the philosophical (dialectical) method, general scientific methods (the method of analysis and the formal logical method), as well as methods related to special scientific methods (formal legal and comparative legal). Results. The study of the economic and legal nature of the minimum tax liability concluded that there is a tendency to expand the range of taxpayers. In particular, at the expense of individuals – members of private farms. The article proves that such innovations lead to the loss of existing tax privileges for farms and increase the tax burden for these entities. The authors identify the risks of introducing a minimum tax liability, including incentives for farmers to alienate agricultural land or transfer it to other persons, alienation of farmers from the main means of production, and increased unemployment. It is established that the introduction of the minimum tax liability under the existing conditions is a violation of the fundamental principles of tax legislation of Ukraine. The generalisations obtained can be used to amend the tax legislation and will be useful in conducting scientific research on tax and agricultural legal relations.

Pillar Two and BEFIT: Shocks and Opportunities for the EU Internal Market

The OECD BEPS Project has had a profound influence on EU tax policy. It is increasingly shaping the internal market and national corporate tax law. Following implementation of the Anti-Tax Avoidance Directive (2016/1164) and the Minimum Taxation Directive (2022/2523) (both stemming from the OECD’s Pillar Two set of rules), the European Commission recently brought forward, inter alia, the Proposal for a BEFIT Directive. Against the background of the harmonization competences granted to the Union in the Treaty on the Functioning of the European Union (2007), this article highlights Pillar Two, as well as the BEFIT proposal, and provides an outlook on tax accounting in general.

The Fate of Investment Entities under the Global Minimum Taxation Framework with a Focus on Italy

This article addresses the implementation of global minimum taxation in Italy and provides an initial assessment of its anticipated impact on investment entity structures and, more broadly, on the asset management industry. In particular, the article delves into the GloBE rules governing investment entities, providing insights on the relationship between the definition of investment entities provided by the Model Rules and those employed for accounting purposes by IFRS 10. Examples of the application of the GloBE rules to investment entity structures are provided, along with considerations on the possible operational and business consequences.

How Appropriate Are Domestic Minimum Top-Up Taxes in Africa?

In this article, the author argues that concerns around a proliferation of domestic minimum top-up tax regimes in Africa may be exaggerated. Potential additional revenue collections from Pillar Two do not justify the required additional capacity investment. The primary focus, for Africa, should be to reassess preferential tax regimes.

Smart Answers to GLoBE Challenges Faced by a Small Country

In this note, the authors highlight the challenges that Hungary, a small country with a low corporate income tax rate, faced in implementing Pillar Two. The intention was to comply with the global minimum tax rules while keeping as much of the country’s attractiveness to foreign investors as possible at the lowest cost to the state budget. This was achieved by a range of targeted measures which may serve as a best practice for other countries in a similar situation.

System of sources and principles of international tax law

In international cooperation on taxation, countries strive to achieve equality in international taxation and, thus, create the basis for a fair international tax system. Justice exists in an international system of taxation only when states allocate taxing powers among themselves in a manner consistent with dominant views of justice internationally. A fair international tax system will not exist until there is some international consensus on how countries should allocate taxing powers among themselves. International cooperation allows countries to improve the coordination of tax policy at the international level. We can talk about several types of coordination. For example, one type aims to make a country’s tax system more similar to others - in other words, to harmonize taxes. Other types aim to establish minimum or maximum tax rates to avoid double taxation of cross-border income streams, prevent transfer pricing, coordinate arrangements with competent authorities and limit harmful tax competition. The current official agreements mean business activities through a permanent establishment and give the source country the primary right to tax profits from this operation. The country of residence is obliged to exempt these profits from tax, at least to the extent that they were taxed by the country of source. A tax treaty also often provides for an exemption from taxation of the employee’s income from personal services provided the employee is in the country for no more than a specified period of time and the compensation is received by a non-resident employer without a permanent establishment. The treaty usually reduces or eliminates withholding tax on at least some items of investment-type income, such as interest, dividends, rents and royalties, that are not attributable to business carried on through a permanent establishment. The tax treaty also provides that the country of residence can tax capital gains.

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

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.

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.

Designing a Billionaire's Tax

With ProPublica’s dramatic revelation in 2021 of the low “true tax rates” of America’s billionaires serving as a catalyst, the exclusion of unrealized gains from the base of the federal income tax has been challenged to an extent unprecedented in the century-plus history of the tax. In late 2021, a proposal by Senate Finance Committee Chair Ron Wyden (D, OR) to tax billionaires’ unrealized gains in tradable assets might have become law, but for the opposition of Senator Joe Manchin (D, WV). And in early 2022, the Treasury Department of President Joe Biden included a minimum tax on the unrealized gains of the ultrarich in its tax reform proposals. A narrower reform, taxing billionaires who borrow against unrealized appreciation to finance lavish consumption expenditures, has also been urged. All three of these proposed reforms—but especially the first two—would transform the fundamental character of the income tax as applied to the wealthiest Americans. This Article describes the three approaches, considers design challenges under each and evaluates their relative merits.

Tobacco industry pricing strategies during recent tax adjustments in Mexico: evidence from sales data

IntroductionPrevious studies have identified pricing strategies that the tobacco industry employs to try to minimise the impact of tobacco taxation, but these studies are mostly about high-income countries. This research...

Taxation of MNE profits in an R&D driven economy: Beneficial tax havens and minimum taxes

AbstractResearch and development (R&D) by multinational enterprises (MNEs) generates substantial positive cross‐country spillovers. With R&D incentives primarily provided by the MNEs' host countries, these nations bear the entire cost of incentivising R&D but only reap a fraction of the benefits, resulting in inefficiently low R&D incentives and investment from a global perspective. Allowing MNEs to shift their profit to a tax haven shelters the firms' profit from foreign taxation and increases the net returns to R&D without reducing the domestic tax base. In this setting, tax havens can be welfare beneficial because they help to internalise the positive cross‐country spillovers of R&D. The optimal effective minimum tax balances a reduction in wasteful profit shifting and more efficient R&D incentives for MNEs. Regardless of the welfare effect of R&D, a strictly positive minimum tax is optimal for each country. Uncoordinated minimum taxes may be excessively high, if R&D investment has a strong impact on productivity. Under certain circumstances, IP boxes are a welfare‐improving substitute for tax havens.

Effects of the Global Minimum Tax on Income Tax Incentive Framework in Indonesia

In this article, the authors analyse Indonesia’s tax incentives to lure investments and its commitment to adopt the GMT. Such adoption could potentially reduce a company’s effective tax rate to under 15%, possibly diverting revenue from Indonesia to other jurisdictions. The article suggests that the GMT’s introduction in Indonesia will influence various tax incentives, primarily those based on income, including tax holidays, tax allowances, super tax deductions, discounted rates and regional development incentives. Post-GMT, the government plans to introduce the qualified domestic minimum top-up tax to safeguard national revenue during GMT’s roll-out and the qualified refundable tax credit to maintain Indonesia’s competitive investment environment following GMT’s implementation.