The Global Minimum Tax (GMT) introduces significant changes to the taxation of large multinational enterprises. This paper assesses the impact of the GMT using new and unique data on MNE activity and has four main findings. First, the GMT reduces the incentives to shift profits, resulting in an estimated fall in global shifted profits by around half. Second, the GMT will reduce low-taxed profit worldwide through reduced profit shifting and top-up taxation. The global amount of MNE profit taxed below the 15% minimum effective rate is estimated to fall by more than two thirds. Third, the GMT is estimated to increase CIT revenues by USD 155-192 billion per year. The distribution of these gains across jurisdictions strongly depends on implementation choices of governments. Finally, the GMT is estimated to reduce tax rate differentials across jurisdictions which could potentially impact the efficiency of the allocation of investment and economic activity.

We study which multinationals are likely to reduce their profit shifting in response to the global minimum top-up taxes introduced in 2024, using 34 thousand multinational-country observations from tax returns, financial statements and country-by-country reports of all multinationals active in Slovakia in 2020. We estimate that its corporate tax revenues will increase by 3% or EUR 73 million, with 57% of the increase due to its top-up taxes on undertaxed profits in Slovakia (52% of the increase) and in other countries (5%). The other 43% of the increase is corporate income tax on profits that are no longer shifted out of Slovakia due to other countries, both non-headquarter (87%) and headquarter (13%), applying top-up taxes. Multinationals will reduce profit shifting by 57%; by 59% to low-tax countries but only 42% to high-tax ones. In particular, German and Austrian multinationals will mostly continue shifting profits to their parent countries.

Announcements made in 2021 by the Organization for Economic Cooperation and Development about a global minimum tax (Pillar Two) not only were legally non-binding but also lacked domestic political support in many countries. It is thus unclear how many nations will adopt Pillar Two. The initial OECD process also avoided important questions of international law: legal controversies may importantly determine the course of Pillar Two implementation. This paper analyzes strategic incentives for adopting Pillar Two on the part of national-income-maximizing governments. Countries from which multinationals originate will likely suffer deep losses and be better off defecting. Pillar Two’s enforcement mechanism, the UTPR, lack effectiveness; accounts of its purported clever design lack logical inconsistency. Any purported novelty in Pillar Two design must confront first-order questions about international law. Assuming Pillar Two as new institutional reality in international taxation is thus over-hasty and may lead to bad social science.

We analyze the role of the threshold in the Global Minimum Tax (GMT) on the tax competition between a country with an multinational firm affiliate that sells in the local market and a tax haven country that is setting the tax rate to induce profit shifting from the sales affiliate to a tax haven affiliate. We assume that firms are heterogeneous in their productivities and faced fixed costs of setting up a tax haven affiliate, so that only the most productive firms will choose to have a tax haven affiliate. We examine how the existence of an intensive and extensive margins of profit shifting affect the tax competition between the tax haven and non-haven countries.