TRANSNATIONAL
CORPORATIONS
Volume 29, 2022, Number 2
130
Assumption (i) implies
γ′
ch
=
γ
ch
. The expression above becomes:
ω
c
=
S
lrgUS
,
c
S
US
,
c
7 Results
∆
ETR
FDI
,
CO
lrg
,
c
=
1
−
CO
SHARE
c
(
ETR
c
−
ETR
c
)
(11)
+
h
,
h
=
c
γ
ch
(
ETR
c
−
ETR
h
)
−
h
,
h
=
c
γ
ch
(
ETR
c
−
ETR
h
)
∆
ETR
FDI
,
CO
lrg
,
c
=
1
−
CO
SHARE
c
(
ETR
c
−
ETR
c
)
(11.i)
+
h
,
h
=
c
γ
ch
(
ETR
h
−
ETR
h
)
−
h
,
h
=
c
γ
ch
(
ETR
c
−
ETR
c
)
∆
ETR
FDI
,
CO
lrg
,
c
=
h
,
h
=
c
γ
ch
(
ETR
h
−
ETR
h
)
(11.ii)
∆
ETR
FDI
,
CO
lrg
,
c
=
h
,
h
=
c
1
−
CO
SHARE
h
γ
ch
(
ETR
h
−
ETR
h
)
(11.iii)
Appendix
γ
ch
=
PS
O
all
,
ch
π
all
,
c
=
PS
O
ch
π
c
π
c
=
π
∗
c
+
h
=
c
PS
O
ch
4
(11.i)
Assumption (i) maximizes the negative term in (11) and (11.i) ≤ (11). Furthermore,
the application of assumption (ii) to
our framework implies that
ETR
I
c
= ETR
c
, i.e.
rules out the ETR channel. Expression (11.i) then becomes:
ω
c
=
S
lrgUS
,
c
S
US
,
c
7 Results
∆
ETR
FDI
,
CO
lrg
,
c
=
1
−
CO
SHARE
c
(
ETR
c
−
ETR
c
)
(11)
+
h
,
h
=
c
γ
ch
(
ETR
c
−
ETR
h
)
−
h
,
h
=
c
γ
ch
(
ETR
c
−
ETR
h
)
∆
ETR
FDI
,
CO
lrg
,
c
=
1
−
CO
SHARE
c
(
ETR
c
−
ETR
c
)
(11.i)
+
h
,
h
=
c
γ
ch
(
ETR
h
−
ETR
h
)
−
h
,
h
=
c
γ
ch
(
ETR
c
−
ETR
c
)
∆
ETR
FDI
,
CO
lrg
,
c
=
h
,
h
=
c
γ
ch
(
ETR
h
−
ETR
h
)
(11.ii)
∆
ETR
FDI
,
CO
lrg
,
c
=
h
,
h
=
c
1
−
CO
SHARE
h
γ
ch
(
ETR
h
−
ETR
h
)
(11.iii)
Appendix
γ
ch
=
PS
O
all
,
ch
π
all
,
c
=
PS
O
ch
π
c
π
c
=
π
∗
c
+
h
=
c
PS
O
ch
4
(11.ii)
Lastly, a substance-based carve-out applied to shifted profits, i.e. assumption (iii),
further mitigates the impact of Pillar Two on FDI-level ETRs:
ω
c
=
S
lrgUS
,
c
S
US
,
c
7 Results
∆
ETR
FDI
,
CO
lrg
,
c
=
1
−
CO
SHARE
c
(
ETR
c
−
ETR
c
)
(11)
+
h
,
h
=
c
γ
ch
(
ETR
c
−
ETR
h
)
−
h
,
h
=
c
γ
ch
(
ETR
c
−
ETR
h
)
∆
ETR
FDI
,
CO
lrg
,
c
=
1
−
CO
SHARE
c
(
ETR
c
−
ETR
c
)
(11.i)
+
h
,
h
=
c
γ
ch
(
ETR
h
−
ETR
h
)
−
h
,
h
=
c
γ
ch
(
ETR
c
−
ETR
c
)
∆
ETR
FDI
,
CO
lrg
,
c
=
h
,
h
=
c
γ
ch
(
ETR
h
−
ETR
h
)
(11.ii)
∆
ETR
FDI
,
CO
lrg
,
c
=
h
,
h
=
c
1
−
CO
SHARE
h
γ
ch
(
ETR
h
−
ETR
h
)
(11.iii)
Appendix
γ
ch
=
PS
O
all
,
ch
π
all
,
c
=
PS
O
ch
π
c
π
c
=
π
∗
c
+
h
=
c
PS
O
ch
4
(11.iii)
Table 8 provides a quantification of the impact of the
sequential application of
assumptions (i), (ii) and (iii) to our framework. We use the baseline scenario with
carve-out as a starting point (+2 pp) and provide estimates
at the country-wide
level (in line with (9)). To facilitate the comparison with the OECD’s EIA, we first
remove the countries not covered in the OECD analysis.
The results show that
sample selection is not determinant (+2.1 pp). Next, we assume that the profit
shifting behaviour of the foreign affiliates of large MNEs is the same before and after
Pillar Two (11.i). This hypothesis alone reduces the estimated
impact of Pillar Two
on FDI-level ETRs by 0.2 pp (+1.9 pp). The third iteration assumes that the impact
of Pillar Two through the ETR channel is null. The impact
of Pillar Two on FDI-level
ETRs lowers by 0.6 pp in this case (+1.3 pp). Finally, we apply a carve-out of 40
per cent to shifted profits. The global impact of Pillar Two decreases by 0.5 pp
(+0.8 pp). Overall, the expected increase in FDI-level ETRs at the global level goes
from a baseline (conservative) estimate of +2.1 pp to +0.8 pp after incorporating
the OECD’s EIA assumptions (i), (ii) and (iii) into our framework.
The final simulated
impact at +0.8 pp is only slightly higher than the impact estimated by the OECD.
Although the two approaches are very different and hardly comparable,
it suggests
that the difference between our estimate and the OECD’s stems from underlying
assumptions rather than fundamental differences in methodology.
A new framework to assess the fiscal impact of a global minimum tax on FDI
131
Source
: Authors’ calculations.
Note
: FDI-weighted averages. Results for ∆
ETR
FDI,CO
expressed in percentage points. Offshore financial centres excluded. PS: profit
shifting. ETR: effective tax rate. With carve-out.
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