EUCORPORATETAXATIONINTHEDIGITALERA

THEROADTOANEW

INTERNATIONALORDER

Chair

VieriCeriani

Rapporteur

ApostolosThomadakis

ThisstudyreflectsthediscussionsheldamongthemembersoftheTaskForceon‘Globalcorporatetaxation:theroadtonewrulesinthedigitalera’,whichwasinitiatedbyKarelLannoo.FourmeetingswereheldbetweenFebruary2022andJune2023.

TheviewsexpressedinthisreportdonotnecessarilyreflecttheviewsandpositionsoftheChairorthemembersoftheTaskForce,ortheviewsoftheirrespectivecompanies.Themembersdonotnecessarilyagreewithallthepositionsputforward,anddonotnecessarilyendorsethereferencestoacademicandindependentstudies.Arobustandclearsetofprincipleshaveguidedthedraftingprocessinordertopreserveabalancedapproachtoavarietyofviews.Allmembersweregivenampleopportunitytoexpresstheirviews.Thecontentofthereportandanyremainingerrors,however,canbeattributedonlytotherapporteur.

ThereporthasbenefitedfromaseriesofinformaldiscussionswithbothEuropeanandinternationalauthorities,aswellasfromseminars/conferencesorganisedonthesubjectseparatelyfromtheTaskForce.TherapporteurgratefullyacknowledgesthecontributionsprovidedbyallparticipantsoftheTaskForce,andinparticularbytheChair,VieriCeriani.AlistshowingthecompositionoftheTaskForceisprovidedattheendofthisreport.CommentsreceivedbySeanBray,ElisaCasi-Eberhard,KarelLannoo,andKaterinaPantazatouaregratefullyacknowledged.ThanksarealsoduetoBeatrizPozofortasksrelatedtotheadministrationoftheTaskForce,andJulietReynoldsforeditingthereport.

Suggestedcitation:Thomadakis,A.(2023),EUcorporatetaxationinthedigitalera-Theroadtoanewinternationalorder,CEPS-ECMIStudy,CentreforEuropeanPolicyStudies.

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?Copyright2023,CEPSandECMI

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TableofContents

Foreword i

Executivesummary 1

1.Introduction 3

2.WhatisPillarOne? 6

3.WhatisPillarTwo? 9

4.Europeancorporatetaxsystem 13

4.1FromtheNeumarkReporttotheAnti-TaxAvoidanceDirective 13

4.2TheEU’sDigitalTaxationPackage 15

4.3TheEUDirectiveonPillarTwo 16

5.UStaxreforms 19

5.1GlobalIntangibleLow-TaxedIncome 20

5.2BaseErosionandAnti-AbuseTax 21

5.3Foreign-DerivedIntangibleIncome 22

5.4BuildBackBetterandMadeinAmerica 22

5.5TheInflationReductionActandCorporateAlternativeMinimumTax 24

5.6InteractionwithPillarOneandPillarTwo 24

6.Whatwecanlearnfromthedata? 27

6.1Multinationals 27

6.2Corporatetaxrevenueandproductivity 32

6.3Profitshifting 36

6.4Impactofa15%minimumcorporatetaxonrevenues 40

7.ConcernswithregardtoPillarTwoandtheEUDirective 45

7.1Disputeresolutionmechanisms 45

7.2SimplificationandstreamliningofPillarTworules 46

7.3CoordinationofPillarTwowithBEFIT 47

7.4UndertaxedPaymentRule(UTPR)orUndertaxedProfitRule(UTPR)? 49

7.5Taxcompetitionwillnotdisappear,butwilltakeotherforms 51

7.6CoordinationbetweenCFC,GILTIandQDMTTrules 53

8.Policyrecommendations 56

9.References 57

Annex1.TaskForceMembersandObservers 64

Annex2.ListofAbbreviations 66

TableofFigures

Figure1.Corporateincometaxstatutoryrates(EUandOECDcountries,2000-2021) 4

Figure2.BasicstepsunderPillarOneAmountA 7

Figure3.Basicstepsincalculatingtheeffectivetaxrateandthetop-uptaxpayableunderPillarTwo12

Figure4.HistoricalfederalcorporateincometaxrateintheUS(1909-2022) 19

Figure5.StatutorycorporateincometaxacrossEUMemberStates(%) 27

Figure6.Locationoftheworld’slargest500MNEs(2020) 28

Figure7.Sectoroftheworld’slargest500MNEs(2020) 28

Figure8.Top20MNEsbynumberofaffiliates(2020) 29

Figure9.Numberofaffiliatesofthetop20techMNEs(2020) 29

Figure10.Top20MNEsbynumberofjurisdictions(2020) 30

Figure11.Numberofjurisdictionsofthetop20techMNEs(2020) 31

Figure12.Shareofthe2000largestMNEsintermsofnumberandrevenues,bylocation(2022) 31

Figure13.NumberofMNEsandrevenuesofEUMNEs(2022) 32

Figure14.Revenueofthetop20techcompanies(EURbillion,2022) 32

Figure15.CITrevenueacrossEUMemberStates(%oftaxrevenue,2021) 33

Figure16.CITrevenueacrossEUMemberStates(%ofGDP,2021) 34

Figure17.CITproductivityacrossEUMemberStates(2021) 34

Figure18.StatutoryCITrateandCGOSacrossEUMemberStates 35

Figure19.RatioofCITrevenuetoCGOSacrossEUMemberStates(2021) 35

Figure20.Shareofglobalcorporateprofitsandmultinationalprofits(1975-2019) 36

Figure21.Shareofmultinationalprofitsshiftedtolow-taxjurisdictionsandcorporatetaxloss(1975-2019)

36

Figure22.ProfitsshiftedoutoftheEUbyMemberStates(EURbillion,2015and2019) 37

Figure23.MappingofprofitshiftingfromEUtolow-taxcountries(%oftotalEUprofitsshifted,2019

38

Figure24.Mappingofprofitshiftingfromnon-EUtolow-taxcountries(%oftotalnon-EUprofitsshifted,

2019) 39

Figure25.Corporatetaxrevenueloss(%ofcorporatetaxrevenuecollected,2015-2019) 40

Figure26.Corporatetaxrevenuelossinlow-taxcountries(%ofcorporatetaxrevenuecollected,2015-

2019) 41

Figure27.Taxdeficitas%ofcorporateincometaxrevenueforaminimumtaxrateof15%(EU-27)42

Figure28.Taxdeficitas%ofcorporateincometaxrevenueforaminimumtaxrateof15% 43

Figure29.ETRofselectedUStechcompanies(2022) 44

ListofTables

Table1.DifferencesbetweentheInflationReductionActandGlobalMinimumTaxrules 25

Table2.Estimatedrevenueforaminimumtaxrateof15%inselectedcountries 43

|i

Foreword

Thecurrentsystemofinternationalcoordinationofcorporateincometaxisbasedontheindividuationofseparateentities(subsidiariesorpermanentestablishments),referencetointra-grouptransactions,andthe‘a(chǎn)rm’slengthprinciple’fortransferpricingamongrelatedparties.Itisincreasinglyshowingitsinadequaciesindealingwithtoday’seconomy,whichishighlyintegratedanddigitalised.Thisobsolescenceisnotasurprise.ThesystemfollowsthecriteriasetbytheOrganisationforEconomicCo-operationandDevelopment(OECD)inthe1960s,inheritedfromthosedevelopedbytheLeagueofNationsinthe1920s,roughlyacenturyago.

Basingtaxingrightsonphysicalpresenceinaspecificjurisdictionbecomesinadequatewheneconomicactivityinamarketdoesnotrequiresuchpresence.Also,thesystemdoesnotproperlyconsiderthevalueofdatacollectedfromcustomers.Applyingthetransferpricingrulestointra-grouptransactionshasbecomeaformidableendeavourinthehighlyglobalisedandintegratedeconomy,especiallywhenacomparisonwithsimilartransactionsbetweenunrelatedpartiesisdifficultorimpossible.Moreover,transferpricinghasbecomean‘a(chǎn)rt’thatrequiresgreatexpertiseandinvolvesdelicatechoicesbetweendifferentmethods,withhighadministrativecostsandtaxrisks.Thegoalofsettinganewcoordinationframeworkininternationalcorporatetaxationemergesastheanswertotheshortcomingsofthecurrentsystem.

Furthermore,publicopinionhasbecomeincreasinglyawarethatmultinationalenterprises(MNEs),throughaggressivetaxplanning,areabletoreducetheirtaxliabilitiestolevelsthatareconsideredunacceptablylow.Politicalpressurehasmountedongovernmentstotakeaction,atbothnationalandinternationallevel.

TheBaseErosionandProfitShifting(BEPS)projectwasthebeginningoftheprocessofrevisinginternationalcoordinationontaxmatters.ItsActionPlanswereapprovedin2015,andmostcountriesstartedtoimplementthem.WiththeAnti-TaxAvoidanceDirective,theEUsetnewrulesforcontrolledforeigncompanies,exittaxesonassetsmovedabroad,limitationsonthedeductibilityofinterestpayments,measurestocontrastnon-taxationduetomismatcheswiththirdcountries,andageneralanti-abuseclause.

UndertheTrumpAdministration,theUnitedStatesshoweditsunwillingnesstocooperateinternationallybyneithersigningthemultilateralagreementonBEPS,norchangingthedefinitionofpermanentestablishment,norparticipatinginpubliccountry-by-countryreporting.TheintroductionoftheTaxCutsandJobsAct(TCJA)aimedtoincreasethecompetitivenessandattractivenessoftheUStaxsystem,whilecontrastingthetaxavoidanceofUSMNEs,andguaranteeingaminimumleveloftaxationinthecountry.AlthoughonsomeissuestheTCJAwasalignedwiththeBEPSapproach,onothers(i.e.ForeignDerivedIntangibleIncome,GlobalIntangibleLow-TaxedIncome(GILTI),andBaseErosionandAnti-AbuseTax(BEAT))therewassignificantdivergence.However,GILTIandBEATwereinnovativeincombatinginternationaltaxavoidance,andarousedinterestfromothergovernments:theyhavebeenastimulusforthedefinitionoftheglobalminimumtaxofPillarTwo.

AftertheTCJA,andwiththenewstanceoftheUSAdministrationoninternationaltrade,tensions(re-)emergedbetweentheUSandother(particularlyEuropean)countries.Thesefocusedonthetaxationofthedigitaleconomy.ThemainpointofcontentionwaswhetherthenewcriteriashouldapplyonlytoMNEsactiveinthedigitaleconomy,ortoallMNEs.Inthiscontext,inMarch2018theEuropeanCommissionputforwardapackageconsistingoftwoproposalsfordirectivesonthedigitaleconomy:i)

ii|APOSTOLOSTHOMADAKIS

acomprehensivesolutionofasystemicnature;andii)atargetedsolutionconceivedasabridgesolution,adigitalservicestax(DST).Neitherdirectivewasapproved,alsoduetothefirmoppositionoftheUS.

IntheUS,Biden’sAdministrationturnedtowardsamultilateralcoordinationapproach,withapledgetoreviewsomeaspectsoftheTCJA.ThiswasmetwithpositivereactionsamongtheG7.ThemomentumpickedupinDecember2021,witha‘historic’agreementonatwo-pillarsolution.PillarOne,whichismandatoryforallparticipatingjurisdictionsandrequiresamultilateralconvention,regardsarevisionoftheallocationamongparticipatingjurisdictionsoftherighttotaxlargeMNEs.ItappliestoallMNEs,notonlytothedigitaleconomy.TheexistingDSTwillberepealed,andnofurtherDSTwillbeintroduced.PillarTwo,whichisnotmandatoryandsimplyreflectsa‘commonapproach’(meaningthatcountriesthatadoptitmustacceptapplicationbyothercountries,andthatanyimplementationmustbeconsistentwiththeagreedrules),introducesa15%minimumeffectivetaxrate(ETR)onprofitsexceedingasubstance-basedincomeexclusion(SBIE)ineachjurisdictionwhereanMNEoperates.Bothpillarshaveinnovativeaspects:inadditiontotraditionalmethods,theyintroduceconsolidationofprofitsandformularyapportionment.WhilePillarTwoiswellahead,PillarOneislaggingbehindandfacingsomeresistance:thedraftmultilateralconventionhasnotyetbeenfinalised,anditsimplementationissubjecttotheachievementofa‘criticalmass’ofcountriesthatwilladhere.

AtEUlevel,followingunanimousapprovalbyMemberStatesinDecember2022,PillarTwohasbeentranslatedintotheEUMinimumTaxDirective,whichwillenterintoforceinJanuary2024.ThoughcloselyalignedwiththemodelrulesoftheOECD,theEUDirectivediffersinsomeaspects.Moreimportantly,itsapplicationismandatoryforallMemberStates,thusdepartingfromtheOECD‘commonapproach’,anditalsocoverspurelydomesticgroups.

IntheUS,Biden’sAdministrationmetresistanceinCongress,withtheBuildBackBetterAct(BBBA)failingtopass.However,inAugust2022theInflationReductionAct(IRA)wasapproved,introducing(interalia)theCorporateAlternativeMinimumTax(CAMT),aworldwideminimumtaxonUSMNEs.CAMTpursuesthegeneralobjectivesofPillarTwobutdivergesfromitsrules.Atpresent,itisunlikelythattheUSwillimplementtherulesofPillarTwo,mainlyduetostrongoppositionbytheRepublicanmajorityinCongress.ThereisalsooppositiontotheUSallowingothercountriestoapplyPillarTworulestoUSMNEs.

Theagreementonthetwopillarsandtheprogressesmadeintheirimplementation,albeitslowerthanhoped,markagreatprogressandastepforwardininternationaltaxcooperation.Withroughly140jurisdictionscommittedtosuchanimportantandinnovativeproject,thishasatrulyhistoricdimension.

Nevertheless,severalconcernshavebeenraisedwithregardtoPillarTwo.Thebusinesssectorhasdenouncedthecomplexityofthenewrules,whichinvolvecomplicatedcalculationsrequiringinformationfromfinancialreportingandfiscalreturnsonallentitiesofanMNEgroup;informationthatatpresentisunavailableandneedstobecollectedwithanewdedicatedframework.Moreover,thecomplexitiescastdoubtsonthecapacityofnationaltaxadministrations,notonlythelesstechnicallyadvanced,tomanagethenewcommitmentsproperly.Thereisalsotheriskofdivergingapplicationoftherulesacrosscountries,oflitigationcaseswithtaxpayers,andofcontrastsbetweentaxadministrations.ThelamentedlackofdisputeresolutionmechanismsinboththeOECDrulesandtheEUDirectiveworsensthisscenario.

AnotherpointofconcernisthelackofconsistencybetweentheEUDirective,whichislegallybinding,andtheOECDrules,especiallyiftheOECDInclusiveFrameworkapprovesdocumentsthatareintendedtoprovideinterpretationsandapplicationguidelines,butinfactchangethebasicrules.Theconsistency

EUCORPORATETAXATIONINTHEDIGITALERA:THEROADTOANEWINTERNATIONALORDER|iii

ofPillarTworules(inparticulartheUndertaxedProfitsRule)withexistingtreatiesandnationalprincipleshasalsobeenquestioned.

Asfortaxcompetition,whichPillarTwointendedtocurtail,itislikelythatthiswillmovetootherobligatorycontributionsdifferentfromtheCIT,orexploitthepossibilitiesofferedbythenewrules:sometaxincentivesmightbetransformedinto‘refundabletaxcredits’(or‘transferabletaxcredits)toimprovetheETR.

Finally,thereissomeevidencethattherevenuesmayfallshortofwhatwasoriginallyexpected.Inconclusion,PillarTwoisagreatstepforwardsininternationaltaxcooperation,butisverycomplicated,doesnotcurbtaxcompetitionandmayraiselessrevenuethanexpected.

Inthefaceoftheseshortcomings,corporatetaxationintheEUcouldachievesubstantialgainsinsimplification,reductionoftaxcompetitionandrevenuecollectionwiththeimplementationoftheBusinessinEurope:FrameworkforIncomeTaxation(BEFIT),anambitiouscomprehensiveapproachtoharmonisingbusinesstaxation.Adraftdirectiveisexpectedinthethirdquarterof2023.ThiswillreplacetheCommonConsolidatedCorporateTaxBasepresentedin2010andrevisedin2016,maintainingthetwofundamentalcharacteristics:i)asetofcommonrulesforthedeterminationofaconsolidatedtaxbase;andii)formularyapportionmentofthetaxbasetotheMemberStates,whichwillbefreetoestablishthetaxrate.BEFITwillbuildonPillarTwo,inthesensethatitwillbemandatoryforgroupsofcompanies(MNEsandlarge-scaledomesticgroups)thatfallwithinitsscope;whileothergroupsfailingoutsidethescopeofPillarTwomightvoluntarilyoptin.Inaddition,thetaxbasewillbecomputedfromfinancialaccounts,withverylimitedadjustments.

BEFIThasgreatpotentialintermsofsimplifyingcompliancerequirements,reducingrelatedcostsandensuringuniformitywithintheEU.Theadoptionofasinglecorporatetaxrulebookinsteadof27nationalsetsofrules,andtheuseofconsolidationandapportionmentinsteadoftransferpricingrules,wouldbringgreaterstabilityandtaxcertainty,andwouldalsocurtailtaxcompetitionamongMemberStates.Moreover,BEFITwouldreducethescopefortaxarbitrageandtaxplanningthatexploitinconsistenciesbetweennationallegislations.Hence,itcouldbringincreasedrevenuesandprovideasolidbasefortheEUbudget’sownresources.Inconclusion,buildingonPillarTwo,BEFITgoesbeyondandmaygreatlyimprovethescenarioofcorporatetaxationintheEU.

ThisreporthighlightsthemaindevelopmentsincorporatetaxationinthelastdecadesinboththeEUandtheUS.ItthendivesintothedataandtriestoanalyseMNEs’activityandprofitshifting,aswellastheimpactofa15%minimumcorporatetaxonrevenues.ThereportcontinuesbydiscussingthecriticalpointsinthedesignofPillarTwothatraiseconcernsandrequirecarefulcalibration,beforeputtingforwardrecommendationsonimprovingthefunctioningofPillarTwo,andontheimplementationofBEFIT,stressingtheimportanceofsimplicityanduniformity.

VieriCeriani

FormerUnder-SecretaryofState,ItalianMinistryofFinanceandEconomy(MontiGovernment)

|1

Executivesummary

Internationalcoordinationofcorporateincometaxhastraditionallybeenbasedontheindividuationofseparateentitiesthatperformeconomicactivitieswithinamultinationalgroup:taxationislinkedtotheplacewhereallorpartofacompany’sbusinessactivitiesarephysicallycarriedout,eitherthroughalegalentityorthroughapermanentestablishment.Overrecentyears,however,growinginternationalisation–partlyduetodigitalisation–andthearrivalofbig-techcompanies,haveresultedinchangesincompanies’businessmodels.Thisincludestheirabilitytoprovidedigitalservicesandcreatevaluewithoutbeingphysicallybasedinacertaintaxjurisdiction,andtorecoupitthroughintellectualpropertyrightsfordigitalusers.Thishasraisedconcernsabouttaxavoidance,broughtchallengestotherulesfortaxinginternationalbusinessincome,andsparkedthedebateonwhethersuchrulesarestillfitforpurpose.

Inanefforttoavoidtaxes,multinationalenterprises(MNEs)exploittheinadequaciesofinternationaltaxrulesandshiftprofitstolowornon-taxjurisdictions.Althoughtheshareofcorporateprofitsinglobalincomeincreasedfrom14%to20%between1975and2019,theshareofMNEs’profitsinglobalincomequadrupled(from4%to18%)overthesameperiod.Ontopofthat,about40%(orEUR193billion)oftheseprofitswereshiftedtolow-taxjurisdictions,particularlylow-taxEUMemberStates.

Aimingtoensurethatprofitsaretaxedwhereeconomicactivitiestakeplaceandvalueiscreated,on1July2021,theOrganisationforEconomicCo-operationandDevelopment(OECD)/G20InclusiveFrameworkonBaseErosionandProfitShifting(BEPS)agreedatwo-pillarsolution.PillarOnefocusesonre-allocatingtheprofitsofthelargestandmostprofitableMNEstocountriesworldwide,infavourofmarketjurisdictionswheregoodsorservicesareusedorconsumed.PillarTwointroducesaminimumcorporatetaxrateof15%forlargeMNEsinanefforttocreatealevelplayingfieldthroughaminimumworldwideleveloftaxation.

FollowingtheOECDagreementonPillarTwoModelRules,inDecember2021theEuropeanCommissionproposedadirectivetoimplementPillarTwointheEuropeanUnion.Inahistoricmoment,afterseveralattemptsandinitiativestoharmonisetaxesintheEUthatdatebackto1960,MemberStatesagreedunanimouslyinDecember2022toadopttheDirectiveensuringaglobalminimumleveloftaxationforMNEs.Withthisagreement,theEUstrengthensitscommitmenttobeamongthefirsttoimplementtheOECD'staxreform.EUMemberStatesarenowrequiredtobringintoforcethelaws,regulationsandadministrativeprovisionsnecessarytocomplywiththeDirectiveby31December2023.

Althougheffortshavebeenmadetoestimatetheincreaseincorporatetaxrevenuefromtheintroductionofa15%minimumeffectivetaxrate,theseshouldbetreatedcautiouslyduetothecomplexityoftherules,theuncertaintyonhowtheywillbeapplied,thebehaviouralresponsesoffirmstothenewrules,andtheavailabilityofdata.Onaglobalscale,aminimumcorporatetaxratecouldresultinannualrevenuegainsintherangeofEUR150billiontoEUR200billion,representinganincreaseinglobalcorporatetaxincomeofabout6%to12%.FortheEU,thesenumbersrangebetweenEUR55billionandEUR85billion,orbetween16%and25%ofcurrentcorporatetaxrevenue.Low-taxcountrieslikeBelgium,IrelandandLuxembourgwouldbenefitsignificantly,whileinotherssuchasFrance,Germany,ItalyandSpain,theincreaseincorporatetaxrevenuewouldbelower.

Thebreadthandcomplexityofthenewrules,especiallyinlightoftheveryshorttimeframefortheirentryintoforce,haveraisedconcernsanddiscomfortinbothMNEsandtaxadministrations.Implementationoftherulesmaybeproblematic,leadingtodifferinginterpretationsandapplication

2|APOSTOLOSTHOMADAKIS

acrossjurisdictions,coordinationandcompatibilitychallengeswithothercurrentorongoinginternationaltaxstandardsandinitiatives,moreintensetaxcompetitionornewformsofit,possibledisputesbetweencompaniesandauthoritiesorbetweenauthorities,doubletaxationissues,administrativeburdenandlegaluncertainties,aswellasincreasedtaxrisks.

Inordertoeliminatesuchconcerns,thereshouldalsobeconsistencybetweenthesequencingoftheGlobalAnti-BaseErosion(GloBE)rulesintheEUDirectiveandtheOECD’sAdministrativeGuidance.ThiswillrequireimprovedcoordinationbetweenchangesintheGloBErulesandtheEUlegislation.Moreover,andwithintheEU,theprinciplesofthesinglemarketmustbefulfilled,whiletheconstantstreamliningofnationalrulesshouldbepromoted.

DespitethefactthatsafeharboursshouldbringstableandsubstantialsimplificationstotheGloBErules,ifthedefinitionprocessisprolonged,itmaybeworthwhileconsideringanextensionofthetransitorycountry-by-countrysafeharbourrules.TheagreementandimplementationofrulesforthesettlementoflitigationshouldbehighlyprioritisedwithintheInclusiveFramework,andspecialrulesatEUlevelshouldbeenvisaged.

AsfortheBusinessinEurope:FrameworkforIncomeTaxation(BEFIT),whichaimsforsimplification,areductionincompliancecostsanduniformitywithintheEU(e.g.throughtheprovisionofaone-stopshop),thisshouldbuildonPillarTworules,asmuchaspossible.TheEuropeanCommissionproposesthattherulesshouldbemandatoryforMNEsthatfallwithinthescopeofPillarTwoandoptionalforallothergroups.However,businessesaskforoptionalityforall.Thissolutioncouldbeconsidered,atleastonatemporarybasis,totesttheappropriatenessandattractivenessofBEFIT.Afterall,the‘success’ofBEFITwouldbemeasuredbythenumberofbusinessesthatoptforitonavoluntarybasis.

Furthermore,BEFITshouldbebasedonastrictderivationfromfinancialreporting,withveryfewcorrections.ForthesakeofsimplificationanduniformapplicationwithintheEU,InternationalAccountingStandards(IAS)andInternationalFinancialReportingStandards(IFRS)rulesshouldapplyand,contrarytotheGloBErules,theuseofnationalaccountingrules(i.e.localGAAP)shouldnotbeallowed.However,asasubordinatesolution,theuseofnationalaccountingstandardsmightbeleftoptionalforbusinesses.

Finally,giventhestricttimingofimplementation,andinordertoavoidoverburdeningtaxadministrationsandtaxpayers,anadequatetimespaninrelationtotheimplementationoftheGloBErulesshouldbegranted.

|3

1.Introduction

ThefightagainstinternationalcorporatetaxavoidancehasbeenontheagendaofboththeOrganisationforEconomicCo-operationandDevelopment(OECD)andtheEuropeanCommission(Commission)formanyyears.However,ithasintensifiedsincethe2008globalfinancialcrisisandthesubsequentfiscalpressuresfacedbymanydevelopedcountries,aswellastherecentscandalsofLuxLeaksandthePanamaPapers,amongothers,thathaveattractedinternationalattention.Thus,significantpublicandpoliticalscrutinyhascometobearontheextentoftaxavoidancebytheworld’sleadingmultinationalenterprises(MNEs)(Cobhametal.,2021).

Broadlyspeakingcorporatetaxavoidancecanbedefinedas‘a(chǎn)ctingwithinthelaw,sometimesattheedgeoflegality,tominimiseoreliminatetaxthatwouldotherwisebelegallyowed’(EuropeanCommission,2016)1.Morespecifically,taxavoidancestrategiescoverawidevarietyofbehaviourssuchasdebt-shiftingacrosscountries(DesaiandDharmapala,2015;Bilickaetal.,2021),themanipulationoftransferprices(Klassenetal.,2016;Liuetal.,2020),thelocationofphysicalactivitiesofcompaniesorsomeoftheirassets(notablyintangibleassetssuchaspatents)(HinesandRice,1994;Carpentierietal.,2019),theuseofmismatchesbetweentaxregimes(OECD,2012;CEPS,2019),theinversionofcorporatestructuresbetweenparentsandaffiliates(Gao,2012;Beeretal.,2020),deferralintherepatriationofprofitgeneratedinlow-taxjurisdictions,andtheuseoftreatynetworks(Azémar,2010;IMF,2014).Allofthe