On April 25, 2022 and April 26, 2022 two working papers have been published on the website of the EU Tax Observatory. The first working paper is titled: “The Global Minimum Tax” and was prepared by Niels Johannesen of the University of Copenhagen. The second working paper is titled: “Pennies from Haven: Wages and Profit Shifting” and was prepared by Annette Alstadsæter (Norwegian University of Life Sciences), Julie Brun Bjørkheim (Norwegian University of Life Sciences), Ronald B. Davies (University College Dublin, School of Economics) and Johannes Scheuerer (University College Dublin, School of Economics).
The Global Minimum Tax by Niels Johannesen
This paper studies how the global minimum tax shapes national tax policies and welfare in a formal model of international tax competition with heterogeneous countries. The net welfare effect is generally ambiguous from the perspective of non-havens. On the one hand, the global minimum tax raises their welfare by curbing profit shifting, which boosts government revenue. One the other hand, it lowers their welfare by increasing equilibrium tax rates in havens, which transfers real resources from non-haven firms to haven governments. The net welfare effect is unambiguously positive when the global minimum rate is so high that profit shifting ends.
The working paper can be found here.
Pennies from Haven: Wages and Profit Shifting
Increasing attention has been given to the fact that some multinational enterprises shift income to tax haven countries, an activity that generates inequality in corporate taxation. Here, we examine how profit shifting relates to wage inequality. Using rich matched employer-employee data from Norway, we find that profit-shifting firms pay higher wages, particularly among service firms where the wage premium is approximately 2%. Furthermore, this average effect masks significant within-firm heterogeneity with high-skill occupations – and managers in particular – earning higher shifting wage premiums. CEOs particularly gain, with their wages rising nearly 10%. These results thus suggest that profit shifting by multinationals meaningfully contributes to wage inequality, both between and within firms. Finally, our back-of-the-envelope calculations suggest these higher wages would generate additional income tax revenues which would offset around 3% of the fall in Norway’s corporate tax revenues due to profit shifting.
The working paper can be found here.
Copyright – internationaltaxplaza.info
and
Follow International Tax Plaza on Twitter (@IntTaxPlaza)