International Corporate Tax Reform: Efficacy and Acceptance Assessment of the OECD/G20 BEPS Project.

Abstract

This research focuses on evaluating the efficacy and acceptance of the ongoing international corporate tax reform led by the Organisation for Economic Co-operation and Development (OECD)/Group of 20 (G20) in addressing multinational enterprises (MNEs)’ tax avoidance and promoting a fairer international tax system. The OECD G20 Base Erosion and Profit Shifting Project (BEPS Project) was initiated in 2012 to set up an international framework to combat tax avoidance by MNEs using base erosion and profit shifting (BEPS) practices. The BEPS Project deliverable was delivered in 2015 and comprises a 15-point Action plan (BEPS package). To further Action 1, the OECD proposed a Two-Pillar Solution which was agreed by the Group of 7 (G7). Pillar 1 allocates rights of taxation of residual profits to market countries for large profitable MNEs while eliminating digital services taxes. Pillar 2 imposes a global minimum tax of at least 15% to large profitable MNEs. I assess the effectiveness of the BEPS Project, introduced by the OECD, through a multi-level analysis over the 2010-2024 period. The multi-level analysis comprises (1) a country-level study of the evolution of corporate income revenues in OECD countries and (2) a firm-level study of the evolution of global effective tax rates paid by the largest MNEs worldwide. The findings of these analyses are threefold. First, the country-level analysis shows no significant increase in countries’ corporate tax revenues in the immediate aftermath of the implementation of the BEPS package, suggesting a limited impact of the ongoing international tax reform. Second, the firm-level analysis reveals that the largest MNEs had lower global effective tax rates (ETRs) in the period following the introduction of the BEPS package compared to the period before, suggesting that the ongoing international tax reform did not increase the tax burden of the largest MNEs. Third, the firm-level analysis shows that most of the largest MNEs have an ETR above the global minimum tax rate of 15% introduced by Pillar Two of the BEPS Project, which indicates that either changes in domestic laws to implement Pillar Two are not necessary or the global minimum tax rate under Pillar Two is not ambitious enough. While acknowledging limitations in the data availability and reliability, the findings of my multi-level analysis provide insights into the effectiveness of the OECD/G20 international corporate tax reform and insights for international tax policymaking. The discussion of the results and their limitations highlight the importance of data coverage, availability and accuracy in monitoring international tax policies as well as the need for further research. My findings also suggest that more targeted policies may be sufficient to address corporate tax avoidance, which provide valuable insights for stakeholders and policymakers. The findings have significant implications. For the BEPS Project to achieve real efficiency and acceptance, it must address the challenges of data quality and reporting harmonization to allow reliable monitoring by stakeholders. For MNEs to comply with new data and reporting requirements, the BEPS Project’s implementation needs to provide further tax certainty and administrative simplification. More importantly and urgently, the BEPS Project will have to resist fragmentation of the Inclusive Framework and ensure effective inclusivity, particularly for developing countries.