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The impact of the Pillar One and Pillar Two proposals on MNE’s investment costs: An analysis using forward-looking effective tax rates

Author

Listed:
  • Tibor Hanappi
  • Ana Cinta González Cabral

Abstract

This working paper presents the analytical framework used by the Secretariat to estimate the direct effects of the Pillar One and Pillar Two proposals on MNE’s investment costs. The analysis builds on the standard ETR framework and extends it in two important respects. First, ETRs are calculated for an investment performed by an entity belonging to an MNE group and account for the possibility that MNEs use their organisational structure to shift profits to low tax jurisdictions. Second, the model incorporates a stylised version of the tax provisions introduced under Pillar One and Pillar Two. The results, covering over 70 jurisdictions, account for differences in tax bases and rates, and are empirically calibrated to map MNE activities, i.e., the location of their profits, turnover and assets as well as the impact of the proposals. Overall, the results suggest that the Pillar One and Pillar Two proposals would lead to modest increases on global weighted ETRs. This paper feeds into the broader analysis of the investment impacts of the Pillar One and Pillar Two proposals.

Suggested Citation

  • Tibor Hanappi & Ana Cinta González Cabral, 2020. "The impact of the Pillar One and Pillar Two proposals on MNE’s investment costs: An analysis using forward-looking effective tax rates," OECD Taxation Working Papers 50, OECD Publishing.
    • Handle: RePEc:oec:ctpaaa:50-en
    DOI: 10.1787/b0876dcf-en
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    Cited by:

    1. Kempkes, Gerhard & Stähler, Nikolai, 2021. "Re-allocating taxing rights and minimum tax rates in international profit taxation," Discussion Papers 03/2021, Deutsche Bundesbank.
    2. Petr Janský, 2023. "Corporate Effective Tax Rates for Research and Policy," Public Finance Review, , vol. 51(2), pages 171-205, March.
    3. Hikaru Ogawa, 2021. "Still Under-Taxing the Digital MNE? Assessing the Tax Principles of Pillar One in the BEPS Project," CIRJE F-Series CIRJE-F-1161, CIRJE, Faculty of Economics, University of Tokyo.

    More about this item

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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