Sebastian Dyrda, Guangbin Hong, Joseph Steinberg
Multinational enterprises shift large portions of their profits to tax havens, costing governments in their home countries hundreds of billions of dollars per year in tax revenue. The OECD and G20 governments have recently agreed upon a historic international policy framework designed to reduce profit shifting. This column argues that this framework will achieve its goal, but it will also reduce multinationals’ incentives to invest in intangible capital, which will cause the global economy to shrink. The results suggest some parts of the framework could be reconsidered, particularly regarding the rules on sales-based profit allocation.