Volume 9 • 2022 • Number transnational corporations investment and development

4. Concluding remarks
This paper demonstrates that while the GloBE Rules do not explicitly prohibit 
countries from maintaining a system of tax incentives, they might have an impact 
on the lower tax benefits arising from the use of incentives and lead to the need 
for countries to rethink their incentives policy. Moreover, it seems largely irrelevant 
whether a jurisdiction is part of the Inclusive Framework or has endorsed Pillar Two 
to be affected by its rules. This is because the rules are designed in such a way 
that, as long as the capital-exporting countries implement them, any under-taxation 
(below 15 per cent ETR on consolidated jurisdictional basis) would eventually be 
recaptured, the only remaining question being 
where
. If the IIR or the UTPR apply, 
this would be at the level of another jurisdiction, leaving the country offering the 
incentive in a situation where it foregoes tax revenue to the benefit of another 
country. If the qualified domestic top-up tax applies, this would be the same 
jurisdiction offering the incentive.
In practical terms, the GloBE Rules have a very different impact on different 
incentives. There is the “green” zone where, although providing a tax benefit, the 
rules pursue a higher goal recognized by the OECD and the international community, 
such as prevention of double taxation (participation exemption), dealing with timing 
differences (accelerated depreciations), or determining ability-to-pay by recognizing 
certain expenses in deviation from the financial accounts. Such domestic rules 
would remain largely unaffected by the GloBE Rules.
At the other end of the spectrum is the “red” zone where the corporate tax reduction 
is generalized and serves no purpose other than to provide a favourable tax regime. 

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The treatment of tax incentives under Pillar Two
The reduction might be intrinsic for the system (e.g. because no CIT exists at all), 
time-related (tax holidays), geographically located (SEZs), etc. To the extent such 
systems apply to all entities of an MNE in a given jurisdiction and lead to an ETR 
below 15 per cent, they would always be affected by the Pillar Two Rules for in-
scope situations and excess profits with the resulting tax policy dilemma for the 
jurisdictions that offer them.
Finally, there is the “yellow” zone in between, where only certain items of income are 
affected. These would include mostly passive income, such as interest or income 
from royalties and IP box regimes. The yellow zone is interesting because one 
can hardly determine a priori what would be the effect of Pillar Two in the abstract 
since this effect would depend on the specific circumstances of each taxpayer, 
the constellation of its activities, as well as its substance and the profit-margins 
it operates at. Moreover, since these types of income are mainly “passive” and 
therefore the taxing rights between residence and source countries are mostly 
shared, any under-taxation can be compensated not only at the level of the 
residence state but also by the source state.

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TRANSNATIONAL CORPORATIONS 
Volume 29, 2022, Number 2