Measuring the Expected Effects of the Global Tax Reform

Abstract

Over 140 countries agreed on a fundamental corporate tax reform in 2021 to be implemented in 2023 and beyond. To measure its potential effects, we study asset price changes within minutes of the reform announcements. We construct proxies for the reform’s costs regarding U.S. companies’ tax burdens and countries’ public finances. Likely exposed companies exhibit significant negative stock returns. Our lower-bound estimates indicate total shareholder value losses of $112.6 billion one day after the reform announcements. Further, likely exposed countries experience increases in sovereign debt credit risk. Our findings inform the cost-benefit analysis of a historical international tax reform.

Private Equity and Local Public Finances

“…Academics and the media have speculated that PE firms' focus on profit‐maximization leads to more tax aggressive profit shifting of their portfolio firms (Ault, Schoen, and Shay [2014]). Consistent with this allegation, practitioners argue that the recent international agreement on a global corporate minimum tax will increase the tax burdens of PE‐owned firms as suggested by a decrease in market values of publicly listed PE and multinational firms after the OECD's reform announcement (Garnry [2022], Gomez Cram and Olbert [2023]).…”

Multinational firms in tax havens – Corporate motives, regulatory countermeasures, and recent statistics

“…Recent work has shown that the global tax reform appears to affect MNEs engaging in tax havens and tax haven countries at the macroeconomic level (Gómez-Cram and Olbert 2023). Further, recent work has shown that private CbCR already induces MNEs to alter their tax and investment behavior (e.g., Joshi 2020;De Simone and Olbert 2022).…”

“…Our statistics in Section 4 indicate that tax haven use by MNEs still prevails, potentially driven by larger MNEs not significantly changing their activities in response to CbCR due to their prior exposure to extensive tax audits and reporting requirements. We thus look forward to future research that addresses the magnitudes and exact mechanisms of multinational firms' tax haven activities and also sheds light on the understudied effects on stakeholders outside of tax havens.Recent work has shown that the global tax reform appears to affect MNEs engaging in tax havens and tax haven countries at the macroeconomic level(Gómez-Cram and Olbert 2023). Further, recent work has shown that private CbCR already induces MNEs to alter their tax and investment behavior (e.g., Joshi 2020; De Simone and Olbert 2022).…”