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GLOBALOUTLOOK TAXPOLICY


rate taxes, as a proportion ofGDP, across all 37 OECD countries. Omri Marian, a lawprofessor at the University of California, says that the US proposal “really changes the dynamic” of efforts to makeMNCs pay their fair share. But others question whether the


idea of a global minimumtax is mainly aligned with interests of countries such as the US,which are willing to recover some of the fiscal revenues theirMNCs currently pay overseas, while reducing the space for other countries to pull the fiscal lever to attract investment and boost competitiveness. “It seeks to end the use of [low-


tax] jurisdictions by US-basedMNCs and [only] some foreign corpora- tions,” said Suranjali Tandon, assis- tant professor at the National Institute of Public Finance and Policy in NewDelhi, at a roundtable hosted in June by GLOBTAXGOV, an EU-funded research project at the University of Leiden in Belgium. In 2018, seven out of the top 10


locations for USMNC profit were tax havens, namely Bermuda, the Caymans, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland, according to the US Bureau of Economic Analysis. These seven tax havens housed more US MNC income than the combined total of China, India, Japan, France, Canada and Germany.


Misaligned interests Even with potential kickback from developing countries and low-tax jurisdictions that see a global mini- mumtax misaligned to their inter- ests – for example, Ireland,which has a headline rate of 12.5%– the convening power of the world’s big- gest economiesmay suffice. “The [US] plan doesn’t need 190


countries to fully cooperate,” says Mr Marian. “If the 20 largest economies join this global tax initiative, that will cover most of the capital in the world, and give a strong incentive to other countries to charge the mini- mumrate.” However, without many develop-


ing countries involved in OECD negotiations, many worry that their interests will not be reflected. “Developing countries are at a disad- vantage due tomany historical fac- tors when it comes to attracting investment into their territories,” said Natalia Quiñones, a partner at Colombia-based boutique tax law


June/July 2021 www.fDiIntelligence.com


THE USCOLLECTS FAR LESS TAX FROMCORPORATES THAN THEOECD AVERAGE: CORPORATIONTAX ASASHARE OFGDP, 2018


Source: OECD


firm Quiñones Cruz Abogados, dur- ing the GLOBTAXGOV roundtable. “Tax competition is not ideal, all else being equal. But everything is not equal,” she added.


Whatwould the planmeanfor FDI? Although it raisesmany concerns, the globalminimum corporate tax could have a profound impact on MNC strategies as it is meant to dis- courageMNCs from using subsidiar- ies in low-tax countries to shift income generated from intangible assets – such as patents, software and royalties on intellectual property. Emmanuelle Deglaire, an associ-


ate tax professor at EDHEC Business School, says the global minimum corporate tax would create “tax neu- trality” and reduce the incentive for MNCs to shift profits,while Mr Saint- Amans asserts that putting an end to the race to the bottom, tax havens and lowtax schemes “would be bene- ficial to both the source and resident countries [of FDI]”. Meanwhile, Mr Marian contends


that the tax’s successful implemen- tation would lead to a decline in MNC after tax profits, but it is unlikely to curtail investment plans. “If implemented, I don’t think [the global minimumtax] will depress real investment, but will target cor- porations shifting their intangible profits to low-tax jurisdictions. The corporations affected by these pro- posals are so profitable that I doubt it will have any discernible effect on cross-border investment,” he says.■


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