Europe facing the challenge of taxing multinationals: global minimum tax

• Pages: 187-218
• Author: Marina Castro Bosque

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EUROPE FACING THE CHALLENGE OF TAXING

MULTINATIONALS: GLOBAL MINIMUM TAX1

MARINA CASTRO BOSQUE



SUMMARY: 1. INTRODUCTION. 2. THE PROBLEM DRIVERS: PROFIT

SHIFTING AND TAX COMPETITION. 2.1. The main challenges in the field

of international taxation in the 21st century. 2.2. The role of the OECD.

 

 3. THE EU DIRECTIVE ON PILLAR TWO: A GLOBAL MI-

NIMUM TAX FOR MNEs. 4. CRITICAL REMARKS: THE END TO PROFIT

SHIFTING AND TAX COMPETITION? 4.1. The lack of consensus on the

policy objective behind Pillar Two. 4.2. The (potential) lack of efficiency

of Pillar Two. 5. CONCLUSIONS. 6. BIBLIOGRAPHY.

1. INTRODUCTION.

In recent decades, international taxation has been shaped by efforts to

implement effective measures addressing two key challenges.2 Firstly, the

persistent erosion of national tax revenues caused by the artificial shifting

of corporate profits to jurisdictions with little or no taxation. In particular,

1 This contribution is part of the Project: “La tributación justa de las multinacionales y los

superricos” (FAIRTAX), CIGE/2024/51”.

2 RUIBAL PEREIRA, L.,         

la Unión Europea sobre una tributación mínima global. Documentos de Trabajo del Instituto de

Estudios Fiscales 8/2022.

Available at: https://investigacion.usc.es/documentos/6397d677b0ebee6c879a32d0?lang=

es

MARINA CASTRO BOSQUE

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corporate taxation emerged as a focal point of both public and policy discourse in

the aftermath of the global financial crisis of 2008.3 Multinational Enterprises

(MNEs) came under significant scrutiny, with criticisms often framed in moral

terms, despite their adherence to existing legal frameworks. Empirical analyses

of their global effective tax rates revealed a pattern of relatively low contributions

to Corporate Income Tax (CIT), leading to the perception that these entities were

not contributing their ‘fair share’ to public finances.4 This notion of tax fairness

has since become a central theme in the ongoing reform of corporate tax regimes,

shaping the agenda for CIT reform efforts over the past decade.5 Secondly, the

intensifying tax competition among certain states, aimed at attracting investment,

has resulted in a ‘race to the bottom’, often leading to unfair tax practices.

Furthermore, there is an increasing need to establish common standards in

international taxation to adapt to a new economic landscape characterized by

globalization and digitalization, both of which exacerbate these challenges.6

Since 1996, combating tax evasion and fraud has been a key objective of

the Organisation for Economic Cooperation and Development (OECD),7 the

G7, and later the G20, leading to the adoption of measures aimed at eliminating

these issues. However, the role of the OECD has also evolved over the years, the

latest milestone being the so-called ‘global minimum tax’. This tax, established

under Pillar Two of the OECD/G20 Inclusive Framework (IF) on Base Erosion

and Profit Shifting (BEPS), is an international initiative designed to ensure that

large MNEs with turnovers of at least EUR 750 million pay a minimum level of

corporate income tax (set at 15%) regardless of where they operate. Pillar Two,

characterized as one of the most significant developments in international tax

policy in recent decades,8 introduces a set of coordinated rules, known as the

Global Anti-Base Erosion (GloBE) Rules, which allow countries to impose a top-

up tax on the profits of MNEs that are taxed below that minimum rate in any

jurisdiction. This framework, as discussed here, aims to reduce tax competition

3 In fact, social concern was raised as a result of scandals such as Liechtenstein LGT Bank

(2008); HSBC Bank Falciani List (2010); Offshore Leaks (2013); Luxleaks (2014); Panama Papers

(2016); Bahamasleaks (2016); Futbolleaks (2016); or Paradise Papers (2017).

4 On this topic see, among others, PANAYI, C. HJI., “Is Aggressive Tax Planning Socially

Irresponsible?. Intertax, vol. 43, no. 10, 2015, pp. 544-558; or HAPPE, R. “Multinationals,

Enforcement Covenants, and Fair Share”in      

Avoidance and Tax Risk Management. Oxford University Centre for Business Taxation, 2008.

5 GALENDI, R.A., The Justification and Structure of the Globe Model Rules. 2023, p. 1.

Available at: https://kups.ub.uni-koeln.de/71906/

6 RUIBAL PEREIRA, L., op. cit.

7 In this regard, it shall be noted that Spain joined the European Organization for Economic

Cooperation (OEEC), nowadays the OECD, as a full member in 1959. It is also worth highlighting

Spain’s participation in the Inclusive Framework (IF) since the signing of the agreement in 2017.

8 ARNOLD, B.J., “The Ordering of Residence and Source Country Taxes and the OECD Pillar

Two Global Minimum Tax”, Bulletin for International Taxation, vol. 76, no. 5, 2022.

EUROPE FACING THE CHALLENGE OF TAXING MULTINATIONALS

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among states by limiting the incentive for MNEs to shift profits to low- or no-tax

jurisdictions, while maintaining a degree of tax sovereignty and allowing carve-

outs for certain economic activities with real substance. The framework is being

implemented through national legislation, including an EU Directive requiring

adoption by member states.

This contribution examines the implementation and implications of the

global minimum tax for MNEs, with particular focus on the European Union’s

Pillar Two Directive.9 It begins by contextualizing the persistent challenges of

profit shifting and tax competition in international taxation, which have been

central concerns in the 21st century. The analysis highlights the OECD’s pivotal

role in addressing these issues through the BEPS project and the subsequent

implementation of the two-pillar solution (Section 2). The paper then provides

an overview of the global minimum tax rules, particularly as articulated in the

European Union (EU) Directive implementing the OECD’s initiative (Section 3).

Finally, the contribution critically assesses whether Pillar Two can meaningfully

curb tax competition and prevent profit shifting, drawing attention to conceptual

ambiguities, practical inefficiencies, and the divergent policy motivations

underlying its adoption (Section 4). It is important to note that this paper does

not address the numerous technical challenges associated with Pillar Two in

detail. Instead, it focuses on more fundamental issues, including the inherently

unclear objective of the measure and its lack of full efficiency.

Methodologically, the article employs a doctrinal legal analysis, focusing on

the interpretation of legislative instruments, policy documents and authoritative

guidance from the OECD and EU. It combines a normative evaluation of legal

texts with comparative elements to assess the effectiveness and limitations of

the implementation of the Directive. The analysis is further enriched by a critical

reflection on the broader implications for fiscal sovereignty and the rule of law.

2. THE PROBLEM DRIVERS: PROFIT SHIFTING AND TAX

COMPETITION.

As advanced above, the emergence of global profit shifting and intensifying

tax competition among states has significantly undermined the integrity and

fairness of the international corporate tax system. MNEs increasingly exploit

mismatches between national tax regimes to minimize their tax liabilities, often

by relocating profits to low- or no-tax jurisdictions irrespective of where the

underlying economic activity occurs. At the same time, states engage in strategic

9 Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum

level of taxation for multinational enterprise groups and large-scale domestic groups in the Union,

ST/8778/2022/INIT, OJ L 328.