The OECD analysis shows that Pillar Two could raise a significant amount of additional tax revenues.
New OECD analysis released on February 13 puts the combined effect of the two-pillar solution to digital economy taxation at up to four percent of global corporate income tax revenues, or USD 100 billion annually.
The analysis reveals that revenue gains are broadly similar across high, middle and low-income economies, as a share of corporate tax revenues.
The analysis was released only weeks after 137 countries – members of the BEPS Inclusive Framework – committed to reach, by the end of 2020, an agreement on a consensus-based, long-term solution to the tax challenges arising from the digitalization of the economy.
The analysis covers data from over 200 jurisdictions, covering over 27,000 MNE groups.
According to the OECD, assumptions in the preliminary analysis are illustrative, and do not pre-judge decisions to be taken by the Inclusive Framework.
The analysis shows that the Pillar One reform – designed to re-allocate some taxing rights to market jurisdictions, regardless of physical presence – would also 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. This will be important for developing economies as they tend to be more adversely affected by profit shifting than high-income economies, the OECD noted.
The author is Alex Hunter, Editor, TP News. He oversees and updates the publication and also regularly writes news stories about transfer pricing and international tax law. Alex is reachable at editor@transferpricingnews.com