EconPol: OECD Tax Reform Affects Only 78 of The World’s Largest 500 Companies

Pillar 1 of the latest OECD tax reform will affect only 78 of the world’s 500 largest companies. This is a key finding of the most recent EconPol Policy Brief. The authors estimate the total allocation at USD 87 billion. Around 45 percent of this total (USD 39 billion) will be generated by technology companies. The largest US tech giants – Apple, Microsoft, Alphabet, Intel, and Facebook – alone will generate around USD 28 billion. The number of companies is so low mainly because the tax applies only to companies with revenues above USD 20 billion which earn a rate of return on revenue above 10%. This greatly limits the scope of the tax.

The EconPol publication sets out several estimates of the consequences of the latest OECD agreement. The OECD Inclusive Framework’s plan for taxing multinationals was concluded on July 1. It has two pillars. Pillar 1 gives some taxing rights to market countries; Pillar 2 introduces a global minimum tax. “Around 64 percent of the Pillar 1 tax will be attributed to US-headquartered multinationals – only 37 European companies are likely to be affected,” explains Michael Devereux, one of the authors. Financial companies were excluded. “This decision reduces the total allocation by around half, although this estimate is complicated by the different accounting treatment of banks,” adds Martin Simmler, co-author of the paper. 

Reducing the revenue threshold for multinational companies from USD 20 billion to EUR 750 million would increase the number of companies affected by a factor of 13. The relative gain of reducing the threshold below USD 5 billion is small relative to the increase in the number of companies involved, the study reveals. The sectoral composition of companies is strongly affected by the definition of profitability – pre-tax profits as a proportion of revenue. Among European firms with revenue above USD 20 billion, there are almost twice as many companies that have a return on equity above 10 percent compared to those that have a return on revenue above 10 percent.