A practical proposal to end corporate tax abuse:METR, a minimum effective tax rate for multinationals

An initiative is needed to break the logjam in the international negotiations to reform taxation of multinational enterprises (MNEs). The explosion of profit shifting observed since the 1990s has resulted in hundreds of billions of dollars of tax revenues being lost around the world each year – but reform efforts have thus far failed to deliver measurable progress on the primary agreed goal of better aligning MNEs' taxable profits with the location of their real economic activity. More recently, countries have committed also to ensure that MNEs’ global profits are subject to a minimum effective tax rate, but international agreement depends on designing an approach that can gain wide support. Our proposal for a minimum effective tax rate (METR) could be applied to MNEs by any countries that choose to do so, whether they are home to MNEs, host of MNEs, or both. The METR would be compatible with existing tax treaties, but being non-discriminatory it also complies with other international obligations and could be introduced unilaterally. Economic modelling shows the METR would deliver major revenue gains for participating countries, and adoption would also contribute to, rather than impede, momentum for a more comprehensive multilateral agreement

For a Better GLOBE: A Minimum Effective Tax Rate for Multinationals

This article suggests a variant on the proposal for a global anti-base erosion tax (GloBE), which is more equitable, far less complex, and more practical, as it could be introduced by a coalition of willing states.TEXTThe international efforts to reform taxation of multinational enterprises (MNEs) have reached a critical turning point. The current proposals to stem profit-shifting provide elements for a way forward, but the overall package is complex and could only be implemented through a universally adopted multilateral tax convention, which is highly improbable. We propose a variation of the key proposal for a global anti-base erosion tax (GloBE), which is more equitable, far less complex, and could be introduced by a coalition of willing states.Launched after the great financial crash a decade ago, and following the explosion in profit shifting that took place from the 1990s onwards, an effective outcome for this initiative is now even more urgent as the world economy is plunged into a new crisis sparked by the global pandemic. The introduction of country-by-country reporting (CbCR) for MNEs has given tax authorities unprecedented insights into profit shifting as it affects their tax bases; and the publication of limited, aggregate data has shown the global scale of the problem to exceed US$1 trillion each year in tax losses. Yet these attempts to reform international rules designed a century ago have created a logjam, due mainly to the perceived need to achieve an illusory worldwide consensus among states

Strategic Customer Behavior, Commitment, and Supply Chain Performance

This paper studies the impact of strategic customer behavior on supply chain performance. We start with a newsvendor seller facing forward-looking customers. The seller initially charges a regular price but may salvage the leftover inventory at a lower salvage price after random demand is realized. Customers anticipate future sales and choose purchase timing to maximize their expected surplus. We characterize the rational expectations equilibrium, where we find that the seller's stocking level is lower than that in the classic model without strategic customers. We show that the seller's profit can be improved by promising either that quantities available will be limited (quantity commitment) or that prices will be kept high (price commitment). In most cases, both forms of commitment are not credible in a centralized supply chain with a single seller. However, decentralized supply chains can use contractual arrangements as indirect commitment devices to attain the desired outcomes with commitment. Decentralization has generally been associated with coordination problems, but we present the contrasting view that disparate interests within a supply chain can actually improve overall supply chain performance. In particular, with strategic customer behavior, we find that (i) a decentralized supply chain with a wholesale price contract may perform strictly better than a centralized supply chain; (ii) contracts widely studied in the supply chain coordination literature (e.g., markdown money, sales rebates, and buyback contracts) can serve as a commitment device as well as an incentive-coordinating device; and (iii) some of the above contracts cannot allocate profits arbitrarily between supply chain members because of strategic customer behavior.strategic customer behavior, commitment, supply chains, newsvendor, rational expectations, decentralization