A macroeconomic perspective on the challenges of taxing multinationals

International tax coordination can theoretically be welfare-improving for most countries. The 2021 two-Pillar agreement under the Inclusive Framework is the first of its kind for a century and - while its implementation is still work-in-progress - it demonstrates that tax coordination between countries is possible. The global minimum corporate tax and the new destination-based principle of taxation would reduce pressures of tax competition and profit shifting. The effects of the agreement, however, are likely to be dampened due to its limited scope. With the static revenue impact of the global minimum tax close to six percent of the global corporate income tax revenues, reforms of other taxes remain critical to mobilize revenues. Finally, from a macroeconomic standpoint, for accurate interpretation of information and monitoring of the economy, it is important to analyze how profit shifting by multinationals affects aggregate statistics.