Effects of International Tax Reforms

Date of project : 2021 - 2022

The project examines the effects on EU Member States’ economies of two sets of proposals published in October 2020 as part of the OECD/G20 Inclusive Framework on BEPS project's sub-project Tax Challenges Arising from Digitalisation.


The so-called Pillar One proposal focuses on a new way of allocating the tax base of large multinationals to the countries in which they operate. This would take place by dividing group profits into a share corresponding to a normal level of profitability (routine profit) and the share exceeding it (residual profit). The routine profit share would be treated as in the current system, whereas destination-based taxation would be applied to the allocation of the residual profit share. This would mean that profits would be allocated to the countries to which the goods were sold. 

The Pillar Two proposal, on the other hand, aims to create a minimum tax level for group profits. This would be achieved by limiting the deductibility of a cross-border payment in the source state if the recipient's country of residence applies a tax rate lower than the agreed threshold (under-taxed payments rule). Similarly, foreign-sourced income may be included in a company's taxable income if it was earned in a state applying a lower tax rate than the agreed threshold (income inclusion rule).     

The project a) maps the channels through which the new tax models can be expected to impact companies' decisions and public finances; b) assesses the impacts of the tax models on companies’ effective tax rates and presents simulated calculations of economic impacts in the Member States; and c) evaluates the applicability of the CORTAX model used by the Commission to assessing the effects of tax models and makes proposals for developing the model.

The Government Institute for Economic Research is the project leader in sub-project a) and has an assisting role in sub-project b).    

Responsible researcher: Seppo Kari, [email protected], +358 295 519 419

Marika ViertolaSeppo Kari Business taxation and regulationEuropean ComissionSeppo KariTaxation