Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/318050 
Year of Publication: 
2023
Citation: 
[Journal:] International Tax and Public Finance [ISSN:] 1573-6970 [Volume:] 31 [Issue:] 4 [Publisher:] Springer US [Place:] New York [Year:] 2023 [Pages:] 935-952
Publisher: 
Springer US, New York
Abstract: 
Abstract This paper shows that OECD’s Pillar Two may increase employment and investment in low-tax countries due to the Substance-based Income Exclusion (SBIE). The SBIE allows to tax-deduct payroll costs and user costs of tangible assets twice from the tax base of the top-up tax owed by subsidiaries in low-tax countries. Consequently, it implies that a 15% minimum corporate tax for low-taxed subsidiaries is not achieved if the SBIE is positive. We show that Pillar Two dampens tax-motivated transfer pricing, but changes the employment, investment and import incentives, and that for a sufficiently large cost share of labor and/or capital, the SBIE is equivalent to a production subsidy.
Subjects: 
Corporate taxation
BEPS
Pillar two
Minimum tax
Persistent Identifier of the first edition: 
Additional Information: 
F23;F55;H25;H73
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version
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