Tax Incentives and the Global Minimum Corporate Tax
Reconsidering Tax Incentives after the GloBE Rules
In October 2021, the international community agreed a landmark deal on the two-pillar
solution to the tax challenges arising from the digitalisation and the globalisation
of the economy. As part of this plan, Pillar Two establishes a global minimum effective
corporate tax rate of 15% for large multinational enterprises (MNEs) which has important
implications for the use of tax incentives around the world. This report, prepared
at the request of the Indonesian G20 Presidency, provides a number of concrete considerations
for countries to take into account as they prepare for the implementation of Pillar
Two. Wherever tax incentives drive an MNE’s effective tax rate (ETR) in a jurisdiction
below 15%, the MNE would potentially be subject to top-up taxes under the GloBE Rules,
a core component of Pillar Two. These rules may have an impact on the effectiveness
of certain tax incentives. Therefore, the design of tax incentives will require careful
reconsideration in a post-Pillar Two environment. The report considers the existing
use of tax incentives in developed and developing countries, analyses key provisions
of the GloBE Rules and shows how they may impact different types of tax incentives
differently. The report concludes with policy considerations for countries.
Published on October 06, 2022