Papers & Reports

This article studies action 1 of the OECD’s base erosion and profit shifting (BEPS) project as a policy narrative. The authors outline the role of narrative in international tax policy making and evaluate the argumentative and material coherence of the OECD’s story about the need to ensure the stability of the international tax framework. Focusing on the narrative strategy adopted by the OECD to promote its pillar one proposal, the authors assess the likely persuasiveness of the OECD’s stability argument, particularly, how it may have influenced the response to the proposal by the members of the Inclusive Framework. The authors conclude that the OECD’s concern about the destabilizing effects of digital services taxes on the international tax system propagates a global fiscal illusion and may not sustain long-term support for pillar one by many members of the Inclusive Framework.

This article analyzes the issue of whether the OECD can establish an equitable international tax architecture which will be acceptable by all countries, particularly developing countries. The author believes that the fiscal challenges faced by developing countries are partly due to the OECD’s Model Tax Convention which predominantly favors developed countries by allocating taxing rights to the residence jurisdiction. In view of the opposition against the UN model tax treaty by developed countries led by the OECD and its agenda to establish an international taxing standard, the author urges stakeholders for a push towards a UN intergovernmental tax body to ensure a tax cooperation architecture constructed on the principles of equity and inclusive representation.

In recent years, a growing number of countries have enacted tax rules that require MNEs to document their intra-firm trade prices and show that they are set as in third-party trade. The objective of these rules is to limit opportunities for strategic trade mispricing and profit shifting to lower-tax affiliates. In this paper, the authors studied these regulations’ fiscal and real effects, using data on the transfer pricing documentation rules in France. They observed that MNEs reduced their outward profit shifting from France, while simultaneously lowering real investment in the country. Outside of France, MNEs decreased their investments in low-tax (but not high-tax) group locations. The authors then showed that the observed investment response in France and abroad is driven by reform-induced increases in firms’ effective tax costs.

This article develops a framework to study the aggregate implications of taxing multinational enterprises (MNEs) that shift profits to tax havens by transferring ownership of nonrival intangible capital. The paper finds that profit shifting increases intangible investment, leading to higher output at the MNE level. The paper also evaluates the consequences of two OECD proposals designed to reduce profit shifting i.e. the 15% minimum global corporate income tax and allocating the rights to tax some of an MNE's profits to the countries in which it sells its products. It concludes that these policies would reduce profit shifting by more than two-thirds but would also reduce output in all regions of the global economy. 

This article provides an introduction to the anatomy of tax incentives. It provides tools for the evaluation of tax incentives that have been designed and implemented. Evaluating tax incentives can be done in a variety of metrics: a traditional legal nature, where the emphasis is on technical features and legal certainty. It can also be evaluated using political metrics, where the focus is on regulatory functions that have been dictated by underpinning tax policies. Alternatively, the evaluation can be rooted in economics, where the emphasis is placed on economic efficiency, economic competitiveness, administrative simplicity, adequacy, and equity. The paper then shows how these different tools for tax policy analysis can be combined to evaluate tax incentives in a more holistic and pragmatic manner.

This report provides an analysis of the existing arrangements in international tax cooperation, identifies additional options to make such cooperation fully inclusive and more effective, and outlines potential next steps. The findings of the report show that enhancing the role of the United Nations in tax-norm shaping and rule-setting, with full consideration of existing multilateral and international arrangements, appears the most viable path for making international tax cooperation fully inclusive and more effective.

This article examines a new concept on allocation of taxing rights in international taxation, the concept of location-specific rent, meaning a return to a factor of production that exceeds what the factor’s holder requires to deploy the factor to a particular location. A substantial quantity of location-specific rent likely exists. In theory, taxes on location-specific rent are difficult to avoid and are efficient. And, since location-specific rent can only be earned in one location, each location-specific rent seems to be made possible by one particular society. For that reason, it strikes many scholars as fair that each country should have the exclusive right to tax the location-specific rent that originates in it. The article clarifies what location-specific rent is; shows that it is not the holy grail of international taxation and identifies a modest role of location-specific rent in international tax policy.

This article introduces progressive formulary apportionment and urge that it be implemented within OECD’s Pillar One by establishing a new taxing right called “Amount D.” Unlike traditional formulary apportionment, in which the rights to tax businesses are allocated on the basis of the transactional attributes of the firm such as the firm’s payroll, assets, or sales, the progressive formulary apportionment allocates at least some taxing rights on the basis of states’ economic well-being, with worse-off countries receiving more valuable rights. The authors believe that the progressive formulary apportionment has desirable distributional and efficiency characteristics and that it could be implemented seamlessly within the emerging architecture under Pillar One. The implementation of Amount D will see some allocation to developing countries regardless of whether there is a nexus between the taxed firm and the taxing state.

This document sets out the second set of Administrative Guidance items released by the Inclusive Framework, following the first set of Administrative Guidance items that were published in February 2023. This second set includes guidance on currency conversion rules when performing GloBE calculations, on tax credits, and on the application of the Substance-based Income Exclusion (SBIE). It also includes further guidance on the design of Qualified Domestic Minimum Top-up Taxes (QDMTT) as well as two new safe harbours:

• A permanent safe harbour for jurisdictions that introduce a Qualified Domestic Minimum Top-up Tax (QDMTT), which will make compliance and administration easier for MNEs and tax administrations.
• A transitional safe harbour, which provides the UPE Jurisdiction with relief from the application of the UTPR for fiscal years commencing on or before the end of 2025.

This article examines whether U.S. effective tax rates on foreign income of U.S. multinationals (MNCs) vary according to the favorability of US macroeconomic conditions relative to those of non-US countries. The authors use the pre-Tax Cuts and Jobs Act of 2017 regime as the basis and present evidence that US effective tax rates on foreign earnings are higher in periods when macroeconomic conditions in the US are favorable relative to those elsewhere in the world and vice versa. These results imply that firms seek to maximize after-tax returns when making asset allocation decisions, even when faced with US repatriation tax costs. The paper also shows that economic uncertainty in the US counters positive effects of favorable US macroeconomic conditions on US effective tax rates on foreign earnings.