Volume 9 • 2022 • Number transnational corporations investment and development

3. A new metric: the FDI-level ETR
An extensive body of research shows that MNEs engage in large-scale tax 
avoidance and profit shifting. They move profits generated in high- to low-tax 
countries, and especially toward OFCs (Beer et al., 2020; Dharmapala, 2014; 
Riedel, 2018). Hence, the ETR an MNE ultimately pays on the income generated in 
some country is smaller than the ETR reported in this country. We introduce a more 
comprehensive notion of ETR which encompasses the entire income generated by 
FDI – including shifted income, the FDI-level ETR. The FDI dimension implies a shift 
in the analytical focus from the foreign affiliate’s country of operations (host country) 
to the underlying value-creating FDI project itself.
Consider a generic FDI project i operated by a foreign affiliate of an MNE in a host 
country c. The standard ETR reported by the foreign affiliate in c is:
A new framework to assess the fiscal impact of
a global minimum tax on FDI
Bruno Casella
Baptiste Souillard
This document exclusively contains the equations from the paper. They are listed in
the same order. The font is “Helvetica” to match the font used in the journal.
3 A new metric: the FDI-level ETR
ETR
ic
=
CIT paid in host country c on the FDI income generated by i
FDI income generated by i and reported in host country c
ETR
FDI
ic
=
CIT on the FDI income generated by i in host country c
FDI income generated by i in host country c
ETR
FDI
c
=


1
−
h
,
h

=
c
γ
ch


ETR
c
+
h
,
h

=
c
γ
ch
ETR
h
ETR
FDI
c
=
ETR
c
−
h
,
h

=
c
γ
ch
(
ETR
c
−
ETR
h
)
(1)
1
The FDI-level ETR for the investment i in host country c is instead defined as: