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On Thursday, February 13, the OECD presented a webcast which provided a status report on the development of an impact assessment of the anticipated tax collections and economic consequences of the proposed Pillar One and Pillar Two revisions to the international tax framework. Businesses (and presumably governments even more so) have been eagerly anticipating a readout on this work, as one of the hallmarks of OECD policy making always has been to base policy decisions on rigorous economic analysis.

To its credit, the OECD is attempting to tackle one of the most challenging aspects of tax revenue estimation, namely the effect of behavioral changes encouraged by new law. The status report suggested that two possible behavioral changes could be that multinational enterprises reduce their profit shifting intensity, and that some low-tax jurisdictions increase their corporate income tax rate.

The headline figures are eye-catching; the estimate at the moment is that Pillar One and Pillar Two in combination would result in an overall increase of annual corporate tax collections of up to USD 100 billion, or 4% of current corporate income tax collections. The analysis indicates that tax revenue gains would be broadly similar across high-, middle-, and low-income economies. The report projects that the only group of countries that would lose tax revenue in the aggregate under Pillar One (i.e., the ‘‘surrender states,’’ which would surrender tax rights over income that will be allocated to other jurisdictions) would be ‘‘investment hubs.’’ More than half of the Pillar One reallocated profit would come from 100 MNE groups. The OECD also expects that all three country groups — high, medium, and low income — would see an increase in corporate tax collections under Pillar Two.


Article first published in Bloomberg Tax: Tax Management International Journal on 13 March 2020.


Gary D. Sprague, a 35-year veteran of international tax law and a partner in Baker McKenzie’s Palo Alto office, focuses his practice on international corporate tax planning and advice, tax controversies and tax issues affecting software and digital enterprises. He was one of five business representatives selected by the OECD to participate in the OECD Technical Advisory Group (TAG) concerning the characterization of electronic commerce revenue for tax treaty purposes, and was elected chair of the business representatives on the TAG. Gary was also appointed by the OECD to serve as the business co-chair of the TAG concerning Monitoring the Application of Existing Treaty Norms for the Taxation of Business Profits. He was the Co-General Reporter for the subject Taxation of Income Derived from Electronic Commerce for the International Fiscal Association 2001 Congress. He is a co-author of BNA Tax Management Portfolio No. 555, Federal Taxation of Software and E-Commerce, and is a regular contributor to the Tax Management International Journal’s Leading Practitioner Commentary. He will be the General Reporter for the Main Subject "Big Data and Taxation" of the 2021 IFA Berlin Congress.