The impact of the Pillar One and Pillar Two proposals on MNE’s investment costs

Abstract

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Assessing tax relief from targeted investment tax incentives through corporate effective tax rates

“…The interaction of tax exemptions with standard capital allowances can substantially affect the additional benefit from introducing a tax exemption depending on country specific tax rules. 17 The present case assumes that standard capital allowances are authorised (𝑍 𝑡 ) when tax exemptions apply such that firms have the opportunity to accumulate benefits from both tax provisions. In contrast, tax rules may prescribe that standard capital allowances are proportionally reduced or waived when tax exemptions apply.…”

Corporate taxation and investment of multinational firms

“…The source of forward-looking EMTR is the data prepared by the Leibniz Centre for European Economic Research (ZEW) for the European Union (EU) Commission project TAXUD/2018/DE/307, computing forward-looking ETRs on investment in EU member states as well as a few non-EU countries 19 (Spengel et al, 2019 [41]). The methodology builds on the theoretical model developed by Devereux and Griffith (1998[42]; 2003 [29]) and is also in line with the methodology underlying OECD indicators of forwardlooking ETRs described in detail in Hanappi (2018 [43]). The advantage of ZEW data compared to OECD indicators is that they contain 21 years of history (1998 to 2018), whereas OECD forward looking ETRs are currently only available for 2017.…”

A set of matrices to map the location of profit and economic activity of multinational enterprises

“…of the approach is that the ratio of payroll to turnover may vary across industries, which cannot be accounted for with the available data. 20 An alternative approach to the whole extrapolation methodology would have been to use data on FDI income instead of FDI positions as a starting point. While this would a priori have seemed a more direct approach, it would have posed significant challenges for extrapolation (FDI income being more volatile than FDI positions) and, more importantly, it would have made it difficult to identify ultimate investors, because the available data on FDI by ultimate investor focus only on FDI positions and not on FDI income.…”

“…In addition to this 'standard' return, the rate of return takes into account how the average rate of return to FDI deviates (positively or negatively) from the global average across both investing and receiving jurisdictions. This deviation is computed based on the available data on FDI income 20 (see Annex C for more details).…”

“…In the case of jurisdiction B2, one needs to go one step up in the investing chain to identify the ultimate investor(s), which are here A1 and A2. Ultimate investors into C are finally found to be B1 (investment of 50), A1 (30) and A2 (20). If A1 had itself been a pass-through jurisdiction, one would have needed to look at the jurisdictions investing into A1 to identify the ultimate parent.…”