BEPS, Pillar 2, and the Replacement of Tax-Based Incentives With Nontax Incentives

The 15 percent minimum tax will reduce the appeal of both the implicit investment incentives made available by BEPS planning and the explicit tax-based incentives that countries provide through measures like tax holidays.4 Pressure of Tax Competition The pillar 2 proposal can best be understood as an attempt to limit the pressures of tax competition on governments by reducing the extent to which all countries can lower their ETRs, even if they wish to do so.5 The reduction of tax competition is intended to enable countries to reach a more desirable policy balance, regarding ETRs, than the balance that countries can achieve when faced by the pressures of today’s level of tax competition.