OECD publishes updated impact assessment of the Global Minimum Tax
OECD Projects GloBE Implementation to Yield Up to USD 192 Billion Annual Revenue Gain
The projected annual revenue gains from implementing GloBE rules likely to be between USD 155 billion and USD 192 billion, leading to a 6.5% to 8.1% increase in global corporate income tax (CIT) revenues. This estimate relies on a recent OECD working paper and an associated webinar held on 9 January 2024.
In his opening remarks, David Bradbury, Deputy Director of the OECD's Centre of Tax Policy and Administration (CTPA), stated that the global minimum tax (GMT) is expected to significantly decrease global low-taxed profit by approximately 80%, lowering it from 36% to around 7%, with the remaining reflecting the impact of the substance-based income exclusion. Widespread revenue gains, particularly 5.1%-8% for developed economies and 3.6%-7.8% for developing economies, stem from the discovery of substantial low-taxed profit in high-tax jurisdictions, he said. He also noted that a significant portion of low-taxed profit multinational enterprises (MNEs) globally above the EUR 750 million turnover occur in investment hubs, high-income, and developing jurisdictions mainly due to tax incentives (e.g. tax holidays, patent boxes).
Pierce O'Reilly, head of the business and international taxes unit at the CTPA, presented the findings of an OECD working paper from November 2023, focusing on effective tax rates (ETRs) of MNEs. The data reveals substantial low-tax profit in high-tax jurisdictions, with significant low-taxed profit (ETR <15%) outside of investment hubs, while very low-taxed profit (ETR <5%) is concentrated in investment hubs. These findings have critical implications for the minimum tax debate and offer practical insights for jurisdictions considering Qualified Domestic Minimum Top-Up Taxes (QDMTTs), he said.
The second paper published on 9 January 2023, presented by Ana Cinta González Cabral, an economist in the CTPA's business and international taxes unit, concerned the economic impact of the GMT and relied on the first paper's data. The findings project an over two-thirds decrease in global profit taxed below 15%, a 50% decrease in shifted profit, and a 50% reduction in ETR differentials between investment hubs and non-hub jurisdictions. The figures estimate an annual CIT revenue increase of USD 155 billion to USD 192 billion, with two-thirds direct and one-third indirect through reduced profit-shifting.
When questioned about the lower estimated revenue compared to the 2023 January estimate, Bradbury explained that the new figures consider 2020 data, reflecting a decline in revenue due to the COVID pandemic. O'Reilly emphasized the impact of the US global intangible low-taxed income (GILTI) regime and GLOBE rules, along with enhanced accounting for losses and other deferred tax assets, saying they also contribute to lower profit projection.
In terms of next steps, the OECD confirmed that it would continue offering jurisdiction-specific estimates to all Inclusive Framework jurisdictions and an impact assessment of the Two Pillar solution.