Kimberly A. Clausing (UCLA; Google Scholar), The Income Penalties of Pillar 2: 5 Key Issues, 180 Tax Notes Fed. 555 (July 24, 2023):

On this article, Clausing discusses a current evaluation by the Joint Committee on Taxation [Possible Effects of Adopting the Components of the OECD’s Pillar Two, Both Worldwide and in the United States] regarding the income penalties of the USA adopting pillar 2 conforming tax reforms.

Backside Line
Because the JCT notes, there are giant sources of uncertainty in estimates of what’s going to occur beneath completely different hypothetical situations of coverage adoption. Nonetheless, easy widespread sense tells us that the settlement is nice for any nation that desires to lift income from the company tax. If the remainder of the world agrees to tax multinational earnings at some base degree, that helps the income potential of the company tax as a result of it lessens the pressures of tax competitors and revenue shifting. The impact of the settlement on the power of nations to gather income from the company tax just isn’t the coverage train that the JCT has been requested to think about in its current report, however it’s a extremely related coverage query. (The JCT’s preliminary evaluation of the baseline helps these similar conclusions.)

In fact, the U.S. income potential of the company tax is highest if the USA taxes multinational earnings all through the world and different international locations chorus from doing so. However that consequence just isn’t life like. The U.S. company group wouldn’t help these divergent tax burdens for competitiveness causes, and international governments wouldn’t be content material to cede all taxing rights to the USA.

The worldwide tax settlement solves an essential international collective motion drawback, facilitating the gathering of enough tax income from extremely cell multinational company earnings. This permits governments all through the world the house to make essential revenue-raising company tax coverage adjustments, and it’ll end in a greater alignment between the place financial exercise happens and the place taxes are paid. In the USA, it gives coverage room to lift the GILTI fee, elevate the company fee, and rethink different tax preferences. These company tax coverage adjustments have the potential to fund essential fiscal priorities, decrease tax charges elsewhere within the system, and cut back deficits. Merely put, the settlement helps the USA tax multinationals — if it has the braveness to take action.

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