Chris William Sanchirico (Penn; Google Scholar), Should a Global Minimum Tax be Country-by-country?:
The OECD has proposed implementing a global minimum tax, and the US already has in place one version of such a regime in the form of GILTI. A key design choice in the imposition of a global minimum tax is whether the minimum should be tested on a country-by-country basis or on the basis of an MNE’s global average tax rate. The consensus view appears to be that a country-by-country approach is superior because, first, it raises more revenue and, second, it is more effecting at controlling harmful tax competition. This paper challenges those assertions. It presents a simple game-theoretic analysis suggesting that a global averaging approach is superior in both respects.
This report shows in the context of a simple game theoretic model that a global minimum tax regime that operates on a country-by-country basis is not necessarily superior to one that is based on global averaging — at least not from the perspective of the high-tax jurisdictions spearheading reform. The model suggests that, relative to a GAM, a CbCM forces high-tax jurisdictions to choose between less revenue or deleterious rate reductions.