Tax Credits and Pillar 2: An Assessment in the Light of the Upcoming Implementation of the Global Minimum Tax

Tax credits and, more generally, tax incentives represent an important tool for governments to foster economic growth and to attract FDI. Tax credits include those specifically targeted at R&D activities and investments in capital goods, which serve as stimulus for certain sectors and specific investments, particularly those associated with cutting-edge technologies, which, in turn, are relevant for Mega-Projects. The possibility for governments to grants tax incentives is likely to be affected by the upcoming Pillar 2 regulations, which are going to be implemented in the form of GloBE Rules into domestic tax laws. Specific rules address the use of tax credits providing for a specific treatment which mirrors the accounting principles in identifying those credits that are either "refundable" or "marketable". Despite being overall in line with the Pillar 2 goal, this approach results disproportionate as it sacrifices the possibility for States to utilize tax incentives as economic stimulus beyond what appears to be strictly necessary to ensure the coherence of the Pillar 2 project. What emerges from a careful analysis of the proposed GloBE Rules is that, once those regulation will enter into force, both governments and taxpayers shall carefully evaluate the mix of available tax incentives and their specific forms so as to avoid losing the benefits provided thereby.