Once profits are “transferred” to the corporate tax haven (or CONDUCTED OFC), additional tools are used to avoid paying the full tax rates in the port. Some instruments are OECD compliant (e.B patent boxes, capital deductions for intangible assets (“CAIA”) or the “green jersey”), others have been banned by the OECD (e.B. Double Irish and Dutch Double-Dipping), while others have not caught the attention of the OECD (e.B. single malt). There is some skepticism about whether the GLOBE scheme will have a significant impact on competitiveness in the international tax landscape. Setting the effective minimum rate at 15% means that areas where tax rates are already higher, such as the US and UK, are unlikely to be more attractive to large companies due to regulation. At about 23.5 per cent, the agreed lower limit of 15 per cent is well below the average corporate tax rate in industrialized countries. The agreed rate represents a victory for Ireland, which has opposed anything above 15%, and is well below the minimum rate of 21% proposed by the United States. Nevertheless, the Biden administration has signaled its support for the GLOBE regime. However, as mentioned earlier, government support does not directly lead to the enactment of enabling legislation by the U.S.

Congress. In addition, the same concerns regarding the Pillar 1 agreement, which is a contract discussed above, also apply to the Pillar 2 agreement. The Sub-Committee is mandated to draw on its own experience and to work with other relevant bodies, in particular OECD, to monitor and communicate issues relating to base erosion and profit shifting directly and through regional and interregional organizations. The OECD statement itself does not provide substantial new information on how the proposals might work in practice. However, its publication follows a significant breakthrough in the four-year negotiation process. Ireland, Estonia and Hungary had all previously opposed the introduction of an effective global minimum tax rate, as their corporate tax systems generally allowed for statutory or effective tax rates at or below the proposed global minimum rate. These countries have now agreed to support the proposals after receiving confirmation that the minimum tax rate specified in the proposals is a number and not a fee of “at least” the specified rate. This means that all EU Member States have endorsed the reforms proposed by the OECD and that 136 of the 140 OECD countries have now accepted the agreement (only Sri Lanka, Pakistan, Nigeria and Kenya have not yet joined Pillar 2). The U.S.

Treasury Department is generally a long-time supporter of the Pillar 2 proposal. In contrast, previous U.S. presidential administrations have rejected Pillar 1 proposals because they may have disproportionately affected U.S. companies. Changes to the Pillar 1 proposals, which target only the largest and most profitable business groups until several years after Pillar 1 went into effect, led the Biden administration to express support for Pillar 1. It is important to note that the support of the U.S. President and the U.S. Treasury Department does not mean that the U.S. Congress will necessarily enact enabling legislation. In July 2021, 131 members of the Inclusive Framework, including the Isle of Man, joined a two-tiered, two-pillar plan to ensure that the largest multinational (MNE) companies pay taxes where they operate and make profits, with the aim of improving the security and stability of the international tax system.

The Hines Rice Paper of 1994[55] on the United States The multinational use of tax havens was the first to use the term profit shifting. [5] Hines-Rice concluded that “low foreign tax rates [of tax havens] ultimately improve U.S. tax revenues.” [55] For example, the Tax Cuts and Jobs Act of 2017 (“TCJA”) levied 15.5% on untaxed offshore cash reserves built up by US multinationals using BEPS instruments from 2004 to 2017. If U.S. multinationals had not used BEPS tools and paid all of their foreign taxes, their foreign tax credits would have eliminated most of their remaining exposure to U.S. tax obligations under the U.S. Tax Code. After all, overcoming the tax challenges arising from digitalisation is now a central political issue. The Inclusive Framework has made great strides through the development of a work programme and aims to find a long-term consensual solution for implementation at the G20 in 2020. The Irish media has highlighted a particular threat to Ireland as the world`s largest BEPS hub in terms of proposals to move to a global tax system based on where the product is consumed or used, not where its intellectual property is located. [78] The IIEA Chief Economist described the OECD proposal as “a step from last week that could bring the day closer to the accounts.” [79] PwC`s tax manager in Ireland stated: “There are a limited number of [consumer] users in Ireland and [this proposal] would obviously benefit much larger countries. [80] Profit reduction and profit shifting refer to corporate tax planning techniques that exploit gaps in international and domestic tax law, as well as asymmetries between national tax systems, to shift profits.

As a result, corporate tax rates are excessively low and do not reflect the realities of the underlying economic transactions. The research identifies three main BEPS techniques used to “shift” profits to a corporate tax haven via OECD-compliant BEPS instruments:[29][30] OECD and G20 countries, as well as developing countries involved in the implementation of the BEPS package and the ongoing development of international anti-BEPS standards, create a modern international tax framework to ensure that profits are taxed where economic activity and value creation takes place. .