Effects of the Anti-Base Erosion Rules (Pillar Two) implementation on tax sovereignty

Abstract

Tax sovereignty is essential for a state to determine and collect its own taxation. However, this sovereignty is constrained by international tax law and the globalization of the global economy. The Organization for Economic Co-operation and Development (OECD) has proposed the implementation of Pillar Two, which seeks to prevent multinational enterprises (MNEs) tax base erosion and profit shifting by imposing a minimum global tax. This paper investigates the influence of OECD Pillar Two on the tax sovereignty of a state and examines the principles of international tax law that regulate the allocation of taxing rights between nations and their impact on tax sovereignty. The focus of the thesis is the effects of Pillar Two on the current Latvian corporate income tax system which unlike the most traditional systems allows paying tax only when the profit is distributed. In this respect, the paper discusses the different options for implementing Pillar Two in Latvia and how those options interact with the current corporate income tax system.