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View this email in your browser <https://mailchi.mp/law/perspective-333?e=dd153d6a25> 哥伦比亚大学国际直接投资展望中文版都可以在我们的网站查看: https://ccsi.columbia.edu/content/columbia-fdi-perspectives <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=88b905573b&e=dd153d6a25> . *Columbia FDI Perspectives* Perspectives on topical foreign direct investment issues Editor-in-Chief: Karl P. Sauvant ([log in to unmask]) Managing Editor: Riccardo Loschi ([log in to unmask]) *The Columbia FDI Perspectives are a forum for public debate. The views expressed by the authors do not reflect the opinions of CCSI or our partners and supporters.* No. 333 June 13, 2022 *BEPS reform: The end of fiscal incentives to attract FDI?* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=4616aac131&e=dd153d6a25> by Luca Jobbágy* <#m_660267322069742397__edn1> Host countries have traditionally offered MNEs such tax incentives as tax credits and tax holidays to attract FDI. Although the effectiveness of fiscal incentives is controversial <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=ed40800ae1&e=dd153d6a25>, their widespread use has resulted in a “race to the bottom” in international taxation: countries offer increasingly lower tax rates when competing to attract FDI. The OECD’s newest iteration of the Base Erosion and Profit Shifting (BEPS) reform attempts to significantly erode tax competition through a two-pillar agreement <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=3d63dc59ba&e=dd153d6a25> joined by 137 countries.[1] <#m_660267322069742397__edn2> Pillar 1 shifts tax rights over certain major companies to final consumers’ jurisdictions; Pillar 2 is encapsulated in the Global Anti-Base Erosion (GloBE) rules <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=9d98c1b36a&e=dd153d6a25>. Since the timeline for Pillar 1 is uncertain and Pillar 2 is likely to implicate a much larger portion of the international economy, this *Perspective *offers policy recommendations for host countries’ responses to Pillar 2. Pillar 2 imposes a minimum corporate income tax (CIT) rate of 15% on all companies with annual revenues of €750 million or more and allows home countries to impose a “top-up” tax whenever MNEs’ effective tax rates are below 15% in any given jurisdiction. Host countries can still opt for corporate tax rates below 15%, but home countries will then likely impose the top-up to raise the tax rate on affected MNEs to 15%. Hence, with limited exceptions, host countries will lose any purported investment-promoting benefit attributable to the low rate—they would merely relinquish revenues to MNEs’ home countries. How should host countries respond? - The primary policy recommendation for host countries is *not *to lower effective corporate tax rates for covered MNEs below 15% or, if they are below that threshold, to apply a domestic minimum top-up tax to raise effective rates for in-scope entities to 15%. This implicates statutory tax rates, tax holidays, tax credits, and most tax provisions contained in contracts with MNEs. - Jurisdictions that have not yet joined the GloBE Rules should do so to establish a convincing argument to exit fiscal stabilization arrangements that maintain sub-15% rates.[2] <#m_660267322069742397__edn3> However, host countries retain policy options to offer fiscal incentives that do not trigger top-up taxes if they choose to use this instrument. They can do the following: - *The 15% top-up ceiling*. The top-up mechanism allows home country governments to impose an additional layer of tax only until a 15% effective rate is achieved, so host countries are free to compete on lowering corporate taxes down to that threshold—if they believe this could be effective. Because the average statutory corporate tax rate around the world is currently 24% <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=f3d8e4d303&e=dd153d6a25>, many host countries appear to retain policy space to do that. However, the top-up is based on *effective*, not statutory rates, which are to be calculated using a complex formula <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=052923e4cf&e=dd153d6a25>. Host countries that lower statutory rates should in general ensure that their effective GloBE rates do not dip below 15%. - *The* *substance-based income exclusion*. Pillar 2 allows MNEs to exclude from GloBE income <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=003718ca90&e=dd153d6a25> a value equal to 5% of payroll and tangible assets in a jurisdiction. Host countries can continue to offer tax rates below 15% on this income without incurring a top-up. - *Qualified refundable tax credits*. Pillar 2 includes these credits <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=13e8313135&e=dd153d6a25> in GloBE income instead of treating them as a reduction in taxes paid, leading to a smaller reduction in an entity’s effective tax rate per dollar of credit. This renders such credits, which must be repaid within four years after corporations satisfy conditions for receiving them, proportionally more attractive <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=887b67bc22&e=dd153d6a25> to corporations from a tax standpoint than tax holidays or non-qualified credits. - *Accelerated depreciation*. The GloBE Rules require most deferred tax liabilities to be recast at the 15% minimum rate <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=d59cd23fb5&e=dd153d6a25>, meaning that deductions greater than 15% of an asset’s value may trigger the top-up mechanism. Depreciation deductions will therefore carry a lower value in jurisdictions with tax rates above 15% than they did prior to the Agreement. Many countries already have accelerated depreciation policies in place and may choose to continue to allow them, but should be mindful of this change. - *Non-corporate tax incentives*. Under Pillar 2’s definition of covered taxes <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=8699e23f20&e=dd153d6a25>, host countries remain free to offer incentives on such levies as customs and import duties and VAT. The effectiveness of a non-CIT incentive strategy depends on current rates of non-CIT levies, but can be costly for developing countries that heavily rely on those taxes. - *Unlimited loss carryforwards*. Companies can use prior losses to offset current gains indefinitely. Host countries could relax loss carryforward regimes, keeping in mind that loss deductions are recast at 15% in the same manner as accelerated depreciation deductions. While experts debate the efficacy of downwards tax competition to attract investment, virtually all <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=7f14d0fcfc&e=dd153d6a25> host countries currently rely on such measures. Regardless of host countries’ views on fiscal incentives, however, they should raise corporate effective rates to 15% or impose domestic top-ups to avoid losing revenue to home jurisdictions. ------------------------------ * <#m_660267322069742397__ednref1> Luca Jobbágy ([log in to unmask]) is a JD candidate for 2023 at Columbia Law School and a graduate of the Dual BA Program between Sciences Po Paris and Columbia University. The author wishes to thank Lorraine Eden for comments on an earlier draft of this piece, Howard Mann for a helpful discussion on this subject-matter and Daniel Bunn, Mary C. Bennet and Grace Perez Navarro for their helpful peer reviews. [1] <#m_660267322069742397__ednref2> See Lorraine Eden, “Taxing multinationals: The GloBE proposal for a global minimum tax,” *Bloomberg Tax Daily Tax Report* (Dec. 6, 2019) <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=d5436ef661&e=dd153d6a25> . [2] <#m_660267322069742397__ednref3> This may require renegotiating contracts and other arrangements. But since the tax effect for MNEs should be neutral, at least in principle, this may be possible. *The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Luca Jobbágy, ‘BEPS reform: The end of fiscal incentives to attract FDI?’ Columbia FDI Perspectives No. 333, June 13, 2022. Reprinted with permission from the Columbia Center on Sustainable Investment (**http://ccsi.columbia.edu* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=6d9fa10c2c&e=dd153d6a25>*).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at **[log in to unmask]* <[log in to unmask]>*.* For further information, including information regarding submission to the *Perspectives*, please contact: Columbia Center on Sustainable Investment, Riccardo Loschi, [log in to unmask]; Luca Jobbagy, [log in to unmask] *Most recent Columbia FDI Perspectives* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=c86737d144&e=dd153d6a25> - No. 332, Katia Yannaca-Small, ‘Shaping responsible business conduct through a Multilateral Treaty on Due Diligence,’ Columbia FDI Perspectives, May 30, 2022 - No. 331, Crina Baltag, “Denying the benefits of the Energy Charter Treaty: Shifting the policy or just the burden of proof?,” Columbia FDI Perspectives, May 16, 2022 - No 330, Karl P. Sauvant and Rebecca Chacon Naranjo, “WTO processes would benefit from the input of civil society”, Columbia FDI Perspectives, May 8, 2022 *All previous FDI Perspectives are available at https://ccsi.columbia.edu/content/columbia-fdi-perspectives <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=a277be176d&e=dd153d6a25>* . *Other relevant CCSI news and announcements* - *Job Opening: Director of Programs:* In collaboration with the CCSI Director, and working collaboratively with Senior Colleagues, the Director of Programs will support the development of effective strategies toward the achievement of CCSI’s mission and strategic goals. In particular, the Director of Programs will help to identify a portfolio of impactful projects, ensuring that resources and programs are effectively and adaptively managed; will contribute a profound understanding of how to leverage research findings into concrete outcomes and impact; and will develop systems to ensure the research team has balanced workloads, strong motivation and workplace fulfilment. *A longer description of the role, including key responsibilities and personal characteristics, is linked here <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=0096856e4e&e=dd153d6a25>. Please see here <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=b08628f1e9&e=dd153d6a25> for more details and to apply.* - *On October 3-7, 2022*, CCSI will hold its 2022 Executive Training on Investment Treaties and Arbitration for Government Officials. The program, taking place online, is designed for public sector officials whose responsibilities relate to investment treaty negotiation or investor-state arbitration. There is a critical need for officials at all levels of government to stay up to date on new developments in investment treaty content and investor-state arbitration law and practice. Through an intensive course, government officials will increase their knowledge of crucial aspects of investment law with direct consequences for host-state liability and implications for myriad areas of law and policy. *For more information, and to apply, visit our website <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=160cd345b5&e=dd153d6a25>.* - CCSI, in partnership with E3G, an independent climate change think tank based in London, UK, *is conducting a survey *to better understand the economic, financial and regulatory factors that drive and/or limit the necessary domestic and foreign investments in renewable energy sectors. We hope to use the results of this survey combined with desk research to determine the fundamental determinants (and constraints) of renewable energy investments, and the corresponding ways in which economic, policy and regulatory frameworks can be strengthened to accelerate renewable energy investments. *If you are in the renewable energy industry, and are interested in participating in this survey or would like to receive more information about this project, please contact Ladan <[log in to unmask]>.* Karl P. Sauvant, Ph.D. Resident Senior Fellow Columbia Center on Sustainable Investment Columbia Law School - Earth Institute Ph: (212) 854-0689 Fax: (212) 854-7946 *Copyright © 2022 Columbia Center on Sustainable Investment (CCSI), All rights reserved.* [log in to unmask] *Our mailing address is:* Columbia Center on Sustainable Investment (CCSI) Columbia Law School - Earth Institute, Columbia University 435 West 116th Street New York, NY 10027 Add us to your address book <https://columbia.us6.list-manage.com/vcard?u=ab15cc1d53&id=a61bf1d34a> unsubscribe from this list <https://columbia.us6.list-manage.com/unsubscribe?u=ab15cc1d53&id=a61bf1d34a&e=dd153d6a25&c=d8f30726de> update subscription preferences <https://columbia.us6.list-manage.com/profile?u=ab15cc1d53&id=a61bf1d34a&e=dd153d6a25&c=d8f30726de> [image: Email Marketing Powered by Mailchimp] <http://www.mailchimp.com/email-referral/?utm_source=freemium_newsletter&utm_medium=email&utm_campaign=referral_marketing&aid=ab15cc1d53&afl=1> -- *Karl P. Sauvant, PhD* *Resident Senior Fellow* *Columbia Center on Sustainable Investment* Columbia Law School - The Earth Institute, Columbia University 435 West 116th St., Rm. JGH 825, New York, NY 10027 | p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask] | w: www.ccsi.columbia.edu | t: @CCSI_Columbia <https://twitter.com/CCSI_Columbia> *Investment Facilitation for Development: A Toolkit for Policy Makers. Second Edition,* "Agenda for Practice-oriented Research", "WTO Processes Would Benefit from the Input of Civil Society", "How Would a Future WTO Agreement on Investment Facilitation for Development Encourage Sustainable FDI Flows, and How Could it be Further Strengthened?”, "What Foreign Investors Want: Findings from an Investor Survey", "Incentivising Sustainable FDI", "Green FDI: Encouraging Carbon-neutral Investment", "Extending International Legal Aid from Trade to Investment: An Advisory Centre on International Investment Law", "More Attention to Policies! Improving the Distribution of FDI Benefits", "Facilitating Sustainable FDI in a WTO Investment Facilitation Framework: Four Concrete Proposals", "An Inventory of Concrete Measures to Facilitate the Flow of Sustainable FDI: What? Why? How?", are available at https://ssrn.com/author=2461782 . ____ AIB-L is brought to you by the Academy of International Business. For information: http://aib.msu.edu/community/aib-l.asp To post message: [log in to unmask] For assistance: [log in to unmask] AIB-L is a moderated list.