OECD tax reforms will unevenly impact Europe

Tuesday, May 4, 2021

OECD corporate tax reforms will weaken the international attractiveness of low-tax countries in Europe

Impacts

  • For companies that continue to use tax havens, their home countries could ‘top up’ their taxes to the agreed global minimum rate.
  • Corporate tax reforms will prompt multinationals to repatriate their profits, rather than move them to other foreign countries.
  • The corporate tax proposals come at a particularly bad time for the Irish economy, which is already facing the consequences of Brexit.
  • The inevitable reduction in corporate tax for low-tax countries will likely force them to examine new means of raising revenue.

Conclusion

There is growing political momentum towards ending aggressive base-erosion profit shifting strategies (BEPS) of multinational firms. The OECD aims to reach consensus on proposals by mid-2021. An agreement on a minimum global corporate tax will be technically and politically easier to achieve than a reallocation of taxing rights.

The initiative presents a profound challenge for states that until now have relied on low taxes to generate revenue and economic growth. At the same time, corporate tax reforms provide an opportunity to increase support for domestic innovation as a means of establishing a steadier and more dependable economic base.

References

See INT: OECD-EU cannot count on Biden on digital tax - November 6, 2020

See IRELAND: Long-term Brexit impact will be more subtle - March 16, 2021

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