Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271963 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10319
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper shows that the OECD inclusive framework of Pillar Two fails to implement the claimed 15% minimum corporate tax for subsidiaries of multinational corporations. The reason is that the Substance-based Income Exclusion of Pillar Two allows to tax-deduct payroll costs and user costs of intangible assets twice from the tax base of the top-up tax. Employing a standard multinational firm model, we show that Pillar Two dampens tax motivated transfer pricing, but changes the employment, investment and import incentives. For a sufficiently large cost share of labor and/or capital, the Substance-based Income Exclusion is equivalent to a production subsidy.
Subjects: 
corporate taxation
BEPS
Pillar Two
minimum tax
JEL: 
F23
F55
H25
H73
Document Type: 
Working Paper
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