## Deciphering the GloBE in a Low-Tax Jurisdiction

_IMF Working Papers, March 22, 2024_

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## Bibliographic details
- Authors: Shafik Hebous, Cory Hillier, Andualem Mengistu
- Published: March 22, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400270789.001

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### Key findings and summary
- Pillar Two rules of the Inclusive Framework agreement on a minimum corporate tax (known as ‘Global Anti-Base Erosion Rules’, for short GloBE) have important implications for the design of the corporate income tax.
- It is not possible to design a system that always guarantees generating exactly the bare minimum tax intended by the rules.
- Designing a system that guarantees the bare minimum tax should not be the policy objective.
- If no profit tax already exists, countries need to consider whether to adopt one, and if yes, in what form.
- There is a case for introducing a general profit tax beyond the GloBE rules, together with a qualifying GloBE domestic minimum top-up tax as a backstop.
- Familiar alternatives of efficient economic rent tax designs are no longer equivalent under the GloBE.
- In practice, given the specifics of the rules, an efficient rent tax on in-scope multinationals cannot be combined with a statutory tax rate below a certain cutoff, because the minimum tax becomes always binding.
- Under the GloBE, immediate expensing particularly maintains the time-value of fully deducting the cost of investment, without impacting the GloBE effective tax rate.

### Implications for low-tax jurisdictions
- Low-tax jurisdictions must reassess corporate tax design choices in light of GloBE rules:
  - Consider whether to introduce a general profit tax if none exists.
  - Consider adopting a qualifying GloBE domestic minimum top-up tax as a backstop.
- Efficient economic rent tax designs and their expected outcomes are altered by the interaction with GloBE:
  - An efficient rent tax applied to in-scope multinationals cannot be combined with a statutory tax rate below a certain cutoff without triggering the minimum tax consistently.
- Policy objectives should prioritize broader tax-design goals over attempting to engineer a system that exactly matches the GloBE bare minimum tax.

### Technical design features and effects
- Immediate expensing:
  - Maintains the time-value of fully deducting the cost of investment.
  - Does not impact the GloBE effective tax rate.
- Scope considerations:
  - The analysis focuses on in-scope multinationals and the interaction between domestic rent taxation and GloBE minimum tax rules.

### Policy recommendations and considerations
- Do not pursue a policy objective of guaranteeing the exact bare minimum tax intended by GloBE.
- If no domestic profit tax exists:
  - Evaluate introducing a general profit tax beyond GloBE requirements.
  - Include a qualifying GloBE domestic minimum top-up tax as a backstop to align with international rules.
- Re-evaluate the use of efficient rent taxation for in-scope multinationals given the likelihood of the GloBE minimum tax becoming binding when statutory rates are below certain cutoffs.
- Use immediate expensing where policy aims to preserve the time-value of investment deductions without altering GloBE effective tax outcomes.

### Publication and document specifics
- Title: Deciphering the GloBE in a Low-Tax Jurisdiction
- Authors: Shafik Hebous, Cory Hillier, Andualem Mengistu
- Date: March 22, 2024
- Series: Working Paper No. 2024/064
- Issue: 064
- Pages: 26
- Volume: 2024
- DOI: https://doi.org/10.5089/9798400270789.001
- Stock No: WPIEA2024064
- ISBN: 9798400270789
- ISSN: 1018-5941

*Source: Deciphering the GloBE in a Low-Tax Jurisdiction, IMF Working Papers 2024/064.*

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_Source: https://www.imf.org/en/publications/wp/issues/2024/03/22/deciphering-the-globe-in-a-low-tax-jurisdiction-546343_