OECD presents analysis showing impact of proposed international tax reforms

Feb 17, 2020

New economic analysis shows that a proposed solution to the tax challenges arising from the digitalisation of the economy under negotiation at the OECD would reduce the influence of corporate taxes on investment location decisions. In addition, failure to reach a consensus-based solution would likely lead to further unilateral measures and greater uncertainty. 

The economic analysis and impact assessment of the Pillar One and Pillar Two proposals aims to inform on the design and parameters of the tax reform to be agreed by Inclusive Framework members as part of the negotiations underway at the OECD. The analysis covers data from more than 200 jurisdictions, including all members of the Inclusive Framework, and more than 27,000 MNE groups.  

The analysis shows that the Pillar One reform - designed to re-allocate some taxing rights to market jurisdictions, regardless of physical presence - would bring a small tax revenue gain for most jurisdictions. Under Pillar One, low and middle-income economies are expected to gain relatively more revenue than advanced economies, with investment hubs experiencing some loss in tax revenues. More than half of the profit re-allocated would come from 100 large MNE groups. 

The analysis shows that Pillar Two could raise a significant amount of additional tax revenues. By reducing the tax rate differentials between jurisdictions, the reform is expected to lead to a significant reduction in profit shifting by MNEs.  

The analysis puts the combined effect of Pillar One and Pillar Two at up to 4 percent of global corporate income tax (CIT) revenues, or $100 billion (USD) annually. The revenue gains are broadly similar across high, middle and low-income economies, as a share of corporate tax revenues.