Pillar 2: Tax Competition in Low-Income Countries and the SBIE


The very notion of a globally agreed minimum level of tax on international corporate income must be viewed as an amazing breakthrough. Surely no knowledgeable observers a decade or more ago could have predicted this—nor that 100 countries beyond the OECD and G20 would be participating in the process, whatever its flaws. And if the economically globalized world does wish to continue to tax capital income—at least until there is a means of achieving this entirely at the level of individual owners—then some such agreement has been proven necessary. The incentives of MNEs to minimize their taxes, of individual small jurisdictions to establish business models based upon facilitating that minimization, and—it must be said—of the major advanced economies to create a system that permits this, are simply too strong to overcome without some mutually coercive mechanism. 

Pillar 2 of the OECD’s global tax reform proposal will have significant direct and indirect impacts for low income developing countries (LICs), although the two Pillars were not instigated by nor largely designed around LICs.  Most interesting and problematic is the question as to how the Global Anti-Base Erosion (GloBE) rules for a proposed global minimum effective tax will affect tax competition behavior in LICs, and how LICs should respond when a critical mass of higher income economies adopt the new structure—as now appears likely.  This paper addresses that issue.