On 9 January 2024 the OECD held a webinar to introduce the updated assessment of the projected economic impact of the global minimum tax under Pillar Two of the two pillar solution to international tax.
The OECD has used improved methodology and data, basing estimates on the available data for the years 2017 to 2020. This has allowed more detailed estimates of low-taxed profit globally. The OECD has also updated the modelling of the substance-based income exclusion, the allocation key for the undertaxed payments rule (UTPR), the GloBE tax base and the interaction with the US GILTI.
The global minimum tax would give rise to an average 50% reduction in the effective tax rate (ETR) differential between investment hubs and other jurisdictions. The rules would reduce incentives for profit shifting and increase the importance of non-tax factors in decisions on allocation of capital. This would improve the allocation of capital because factors such as infrastructure and the investment environment would have greater influence on decisions.
The global minimum tax would reduce low-taxed profit globally, by an estimated 80%. This means that low taxed profit would be reduced from an estimated 36% of all profit globally to around 7%. The remaining low tax profit would reflect the impact of the substance-based income exclusion.
Based on data from 2017 to 2020, the revenue gains are estimated to be between USD 155 billion and USD 192 billion per year. Around two-thirds of these revenue gains would result directly from the global minimum tax, and around one-third of the gains would arise indirectly through reduced profit-shifting. The estimated revenue gains represent an increase of between 6.5% and 8.1% of global corporate income tax revenues.
The estimated revenue gains would amount to 5.1% to 8% of corporate income tax for developed economies and 3.6% to 7.8% of corporate income tax for developing economies. The revenue gains would be widely shared among jurisdictions because there is low-tax profit in most jurisdictions, even in jurisdictions that have a high statutory tax rate, owing to the available tax incentives and deductions such as tax holidays and patent boxes.
The actual revenue gains made by a jurisdiction under the global minimum tax will depend on implementation decisions. A jurisdiction that does not implement the rules will be losing the additional revenue that it would otherwise have collected. Revenue from the UTPR could be larger for some jurisdictions if some larger countries do not implement the relevant rules.
The OECD estimates that low-taxed profit (defined as profit with an ETR below 15%) amounts to 36% of the profits of all multinationals whose turnover is above the EUR 750 million threshold globally. Around 74% of the profit in investment hubs is estimated to be low taxed, and in high income jurisdictions around 28% of profits are estimated to be low taxed. In developing countries, low taxed income amounts to around 19% of profits. The OECD estimates that around 53% of low taxed profit is located in high-tax jurisdictions, defined as jurisdictions with an average ETR above 15%.