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Impacts of New International Tax System on Multinational Firms' FDI

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  • Yea, Sangjun

    (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP))

Abstract

In this study, I present a theoretical model to quantitatively assess the economics impact of Pillar 1 and Pillar 2, especially focusing on the changes in the FDI patterns of multinational enterprises (MNEs). Pillar 1 offsets the incentives of MNEs' profits-shifting for tax-planning purposes, thereby reducing the inbound FDI into the countries with low corporate income tax rates. Pillar 2 burdens MNEs with 'top-up' taxes attributed from the subsidiaries in low tax countries. As the profits after tax (PAT) of MNEs shrink at the global level, innovation and R&D investment for new products will decrease, and as a result, global FDI flows will hamper.

Suggested Citation

  • Yea, Sangjun, 2022. "Impacts of New International Tax System on Multinational Firms' FDI," World Economy Brief 22-17, Korea Institute for International Economic Policy.
    • Handle: RePEc:ris:kiepwe:2022_017
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    Keywords

    International Tax System; Multinational Firms; FDI;
    All these keywords.

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