This paper examines the welfare effects of the Global Minimum Tax (GMT) on corporate income using a calibrated general equilibrium model for the EU, Japan, the UK, and the US. The theoretical impact of the GMT is ambiguous—while it boosts tax revenue and curbs profit shifting, enhancing welfare, it also raises firms' capital costs, potentially contracting the economy. Our simulation assumes a fully implemented 15 percent GMT. Two fiscal closures are evaluated: redistributing additional corporate income tax (CIT) revenues as direct transfers to consumers or lowering CIT rates. The first approach yields mixed results with negative global welfare outcomes. The second approach, maintaining constant corporate tax revenue, leads to welfare improvements in nearly all countries. We also investigate the global welfare-maximising GMT rate, which lies between 17 and 18 percent in this second scenario. We conclude that multilateral cooperation has the potential to make all countries better off.

This paper explores how the Digital Service Tax (DST) affects a digital platform serving two customer groups linked by a network effect. The platform maximizes after-tax revenues from three sources: retail sales, advertising, and profit shifting. The DST falls on advertising revenue and prompts the platform to focus on the untaxed side of the market (retail) by raising the transfer price on the retail good. This dampens competition in the retail market and raises consumer prices while lowering ad prices. More profits are also shifted in response to the DST. However, we show that if the network externalitiy is sufficiently strong, these results may be reversed.

Analysis of the international network of double tax treaties reveals a large potential for tax avoidance. Developing countries are, on average, not more likely to suffer from tax revenue losses than other countries. Yet, this average masks the fact that several countries, such as Bangladesh, Egypt, Indonesia, Kenya, Uganda and Zambia, are vulnerable to substantial potential losses of withholding tax revenue by treaty shopping. The analysis combines tax parameters of more than a hundred countries with an algorithm from network theory, which simulates the tax minimizing behaviour of multinational enterprises. We introduce the notion of potentially aggressive tax treaties. These are the key treaties in treaty shopping routes, that may lead to substantial tax revenue losses in developing countries. Moreover, the treaty partners are often in a prime position to top-up tax undertaxed profits of developing countries that offer tax incentives to attract investment, thus nullifying the incentive effects.

The paper focuses on the effects that the introduction of the Global Minimum Tax (GMT) has from the perspective of developing countries. We introduce a model with two asymmetric host countries for FDI that compete with each other for the location of multinational firms, and simultaneously fight profit shifting to a tax haven. The low-income country has the weaker enforcement technology to fight profit shifting. It therefore loses more revenue from profit shifting, but also becomes a more attractive location for multinationals. The GMT reduces both profit shifting and the location advantage of the low-income country. If tax competition for real investment is sufficiently severe, the introduction of the GMT reduces tax rates and tax revenues in the low-income country while tax revenues in the high-income country rise. Our results help explaining the reservations that several developing countries hold towards the GMT.