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Some of Europe's brightest legal minds look at the tax issues across Europe which could impact multinational businesses.

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International tax reform could increase global tax revenues by up to 4%

While discussions continue on the design and technical detail of international tax reform under Pillars One and Two, the OECD Secretariat has the difficult task of modelling the impact of the changes.  At the OECD’s webcast on 13 February, the preliminary results were presented.  As the purpose of the impact assessment is to inform the decisions of the Inclusive Framework, the assessment cannot wait until everything is agreed.  The OECD is using flexible modelling to update the analysis as and when aspects of Pillars One and Two become settled.

At this stage, the OECD has not released information at the country level, although this modelling has been done (and shared with the countries). Instead, the results released show the global impact, the impact on particular jurisdiction groups (high, middle, low income economies), and the impact on investment hubs (jurisdictions with inward foreign direct investment above 150% of GDP).

Combined effect of both Pillars                                                        

The combined effect of both Pillars is that global tax revenue gains could rise by up to 4% of global corporate income tax (CIT) revenues or USD 100 billion annually, depending on the reform design.  The revenue gains are broadly similar across high, middle and low-income economies, as a share of corporate tax revenues. More than half of the residual profit reallocated under Pillar One will come from 100 MNE groups. 

The reforms are expected to reduce the influence of corporate taxes on investment location and result in a significant reduction in profit shifting.  Investment hubs typically have low statutory and/or effective tax rates and will lose revenue under the reforms.  The most significant impact on tax revenues comes from the introduction of a minimum rate of tax under Pillar Two and the consequent reduction in profit shifting.


As there are still so many moving parts of both Pillars, the current impact assessment is based on certain assumptions which are set out in the Appendix to the preliminary results, most notably:

  • Pillar One analysis considers Amount A (the new taxing right and reallocation of residual profit) but does not take into account Amounts B or C, and assumes a 10% threshold on profit/turnover, a 20% reallocation of residual profit to market and a carve-out for finance and commodities.  It assumes Pillar One is mandatory rather than a safe harbour regime;
  • Pillar Two analysis considers a 12.5% rate with jurisdiction blending (rather than global blending);
  • The combined impact of both Pillars does not include interaction effects.

The modelling for the Pillar Two impact does take into account low tax jurisdictions increasing their tax rates to the minimum level but does not consider the impact of high tax jurisdictions reducing their tax rates which may be a reaction to consider in future modelling.


The potential 4% increase in global CIT, weighed against the possibility of further unilateral digital services tax measures and uncertainty, might look very attractive to the inclusive framework countries.  But the real test will be whether, once the design and parameters of reform are firmed up and more granular results are released showing the impact at the country level, those countries set to lose out still see the package as an attractive one.

More than half of the residual profit reallocated under Pillar One will come from 100 MNE groups.


zandrews, slaughterandmay, international tax reform, digital services tax, oecd, pillar one, pillar two, impact measurement, tech tax