A Global Minimum Tax for Large Firms Only: Implications for Tax Competition

Abstract: The Global Minimum Tax (GMT) is applied only to firms above a certain size threshold, permitting countries to set differential tax rates for small and large firms. We analyze tax competition among multiple tax havens and a non-haven country for heterogeneous multinationals to evaluate the effects of this partial coverage of GMT. Upon the introduction of a moderately low GMT rate, the havens commit to the single uniform GMT rate for all multinationals. However, gradual increases in the GMT rate induce the havens, and subsequently the non-haven, to adopt discriminatory, lower tax rates for small multinationals. Our calibration exercise shows that the implementation of a 15% GMT rate results in a regime where only the havens adopt split tax rates. Upon GMT introduction, welfare and tax revenues fall in the tax havens but rise in the non-haven, yielding a positive net gain worldwide.

Date: 2024-04, Revised 2024-12
New Economics Papers: this item is included in nep-acc, nep-gth, nep-int, nep-pbe and nep-pub
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Working Paper: A Global Minimum Tax for Large Firms Only: Implications for Tax Competition (2024)
Working Paper: A Global Minimum Tax for Large Firms Only: Implications for Tax Competition (2024)
Working Paper: A Global Minimum Tax for Large Firms Only: Implications for Tax Competition (2024)
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