Deciphering the GloBE in a Low-Tax Jurisdiction

By Shafik Hebous, Cory Hillier, Andualem Mengistu

March 22, 2024

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Shafik Hebous, Cory Hillier, and Andualem Mengistu. Deciphering the GloBE in a Low-Tax Jurisdiction, (USA: International Monetary Fund, 2024) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Pillar Two rules of the Inclusive Framework agreement on a minimum corporate tax (known as ‘Global Anti-Base Erosion Rules’, for short GloBE) have important implications for the design of the corporate income tax. This chapter discusses these implications particularly from the perspective of low-tax jurisdictions. It argues that it is not possible to design a system that always guarantees generating exactly the bare minimum tax intended by the rules and motivates that this should not be the policy objective anyway. Importantly, if no profit tax already exists, countries need to consider whether to adopt one, and if yes, in what form. There is a case for introducing a general profit tax beyond the GloBE rules, together with a qualifying GloBE domestic minimum top-up tax as a backstop. The familiar alternatives of efficient economic rent tax designs, however, are no longer equivalent under the GloBE. In practice, given the specifics of the rules, an efficient rent tax on in-scope multinationals cannot be combined with a statutory tax rate below a certain cutoff, because the minimum tax becomes always binding. Under the GloBE, immediate expensing particularly maintains the time-value of fully deducting the cost of investment, without impacting the GloBE effective tax rate.

Subject: Allowance for corporate equity, Cash-flow tax, Corporate income tax, Corporate taxes, Tax allowances, Taxes

Keywords: Allowance for corporate equity, Cash-Flow Tax, Corporate income tax, Corporate taxes, Global, International Taxation, Investment, Minimum Tax, Profit tax, Rent Taxation, Scope multinational, Tax allowances, Tax Competition, Tax design, Top-up tax

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/064
Stock No:

WPIEA2024064
ISBN:

9798400270789
ISSN:

1018-5941

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