Pillar Two Corporate Tax Revenue Estimates by Country

Following international agreement on Pillar Two, the European Union unanimously adopted a directive implementing the global minimum tax in December 2022. The following month, the Organisation for Economic Co-operation and Development (OECD) released revenue estimates to assess the real impact of the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
 on public finances.

The global rules are designed to raise revenue, but the question remains: how much? (This is particularly important because the new tax comes at the cost of international competitiveness and investment.) The OECD estimates these rules will raise corporate tax revenue by 9 percent, generating around USD 220 billion in additional global tax revenue annually. The International Monetary Fund (IMF) disagrees, pegging the rise in global corporate income tax revenue at 5.7 percent, more than one-third smaller than the OECD estimate.

Estimating revenue from new taxes can be complex—and sometimes policymakers only know after a new proposal is implemented. Nonetheless, 10 countries have produced individual estimates of corporate tax revenue increases, ranging from 0.8 percent in Australia to 4 percent in the United Kingdom. While these estimates are worth reviewing, they are not necessarily perfectly comparable to each other due to countries’ different approaches.

The OECD’s Pillar Two would generate some revenue for countries

Selected countries would see on average a three percent revenue increase

Note: These are individual estimates using country specific or institution specific methodologies. Estimates are not perfect apples to apples comparisons, see blog text for further details.

Source: Individual country estimates and institutional estimates.

Australia

In May 2023, Australia formally unveiled its federal budget, which included revenue estimates of its implementation of Pillar Two. Australia estimates that Pillar Two would raise AUD 370 million (USD 250 million) over the next five years in corporate tax revenue.

Between 2016 and 2020, Australia averaged USD 66.9 billion in annual corporate tax revenue. Full implementation of Pillar Two would therefore translate to a 0.8 percent annual increase in average corporate tax revenue.

Belgium

In early 2023, the Belgian government formally presented a proposal for the first phase of its “broad tax reform.” In its latest budget agreement, Prime Minister De Croo announced that the implementation of  Pillar Two would raise EUR 330 million (USD 360 million) in annual corporate tax revenue.

Between 2016 and 2020, Belgium averaged USD 19.4 billion in annual corporate tax revenue. Full implementation of Pillar Two would therefore translate to a 1.8 percent increase in average corporate tax revenue.

Canada

In its 2023 “Made-in-Canada Plan,” the Canadian federal government released revenue estimates of its implementation of Pillar Two. In its estimation, national implementation would raise CAD 5.1 billion (USD 3.8 billion) in corporate tax revenue in the first two years. The Department of Finance will collect CAD 2.8 billion (USD 2 billion) in fiscal year 2027 and CAD 2.4 billion (USD 1.8 billion) in fiscal year 2028.

Between 2016 and 2020, Canada averaged USD 63.6 billion in annual corporate tax revenue. Full implementation of Pillar Two would therefore translate to a 3 percent increase in average corporate tax revenue.

Czech Republic

The Czech government has issued draft legislation to implement Pillar Two. The bill, yet to be discussed in Parliament, is expected to enter into force on December 31, 2023. The Czech Finance Ministry estimates that Pillar Two implementation will raise about CZK 4 billion to CZK 6 billion (USD 180.5 million to 270.8 million) annually.

Between 2016 and 2020, the Czech Republic averaged USD 8.7 billion in annual corporate tax revenue. The implementation of Pillar Two would constitute a 2 to 3.1 percent increase in average corporate tax revenue (depending on the range of revenue).

Denmark

The Danish government is in the process of drafting Pillar Two implementing legislation. The Danish Ministry of Taxation estimates that this additional annual revenue will be between DKK 2 billion and DKK 3 billion (around USD 0.3–0.4 billion).

Between 2016 and 2020, Denmark averaged USD 10.1 billion in annual corporate tax revenue. The implementation of Pillar Two would then translate to a 3 to 4 percent increase in average corporate tax revenue (depending on the range of revenue).

France

France, one of the initial supporters of the Pillar One and Pillar Two proposals, is currently drafting a legislative proposal to transpose the EU directive into French law. The French Government estimates that Pillar Two implementation will raise at least EUR 1 billion (USD 1.1 billion) annually.

Between 2016 and 2020, France averaged USD 58.4 billion in annual corporate tax revenue. Implementation at the national level would then translate to a 1.8 percent increase in average corporate tax revenue in the short term and a 3 percent increase in the long term.

Germany

The German government is also drafting Pillar Two implementing legislation that will likely include an official estimate of revenue raised. A 2023 report from the IFO institute in Munich estimates this annual additional revenue will be between EUR 1.9 billion and EUR 2.2 billion (USD 2.09 to 2.4 billion).

Between 2016 and 2020, Germany averaged USD 74.1 billion in annual corporate tax revenue. The implementation of Pillar Two would constitute a 2.8 to 3.2 percent increase in average corporate tax revenue (depending on the range of revenue).

The Netherlands

The Netherlands held a public consultation on the implementation of Pillar Two in the fall of 2022. The consultation contained an evaluation of the transposition and implementation of the EU’s directive and annual estimated expected revenue to be about EUR 0.4 to 0.5 billion (USD 0.5 billion). A final estimate will be made once the Netherlands submits the transposition of the directive, and it will be certified by the Central Planning Bureau.

From 2016 to 2020, the Netherlands averaged USD 29.6 billion in corporate tax revenue. Consequently, the implementation of Pillar Two would imply a 2 percent increase in average corporate tax revenue.

Switzerland

The Swiss Federal Council has proposed a supplementary tax to implement Pillar Two. In Switzerland, the expected revenue is meant to be distributed on a consolidated basis: between the cantons, communes, and the federal government. An updated proposal from the Swiss Federal Department of Finance considering 13 out of 26 Swiss cantons estimates that implementation of Pillar Two would generate more than CHF 350 million (USD 600 million) in additional tax revenue.

From 2016 to 2020, Switzerland averaged USD 22.7 billion in annual corporate tax revenue. Consequently, the implementation of Pillar Two would mean a 2.6 percent increase in average corporate tax revenue.

United Kingdom

The United Kingdom estimated in its 2022 Autumn Statement that the implementation of Pillar Two would raise GBP 2.3 billion a year by 2027-28 (USD 2.7 billion). This estimate comes with the publication of the on or after 31 December 2023.

From 2016 to 2020, the UK averaged USD 68 billion in annual corporate tax revenue. National implementation of Pillar Two would equal a 4 percent increase in average corporate tax revenue.

Conclusion

Pillar Two implementation is underway in many jurisdictions, and many governments are aiming to get their proposals approved before the end of 2023. However, estimating Pillar Two’s impact on government revenue is proving difficult. As a result, only a few countries have publicly presented their findings.

Given the uncertainty of these estimates, policymakers should be cautious about sacrificing their country’s competitiveness and ability to attract investment by implementing Pillar Two rules to chase revenue. An accurate revenue analysis on the effectiveness and magnitude of these new rules may only be possible years after their implementation.

In the meantime, countries should continue to evaluate the revenue impact of the rules and weigh pro-growth options for reforming their tax systems overall to support investment and growth.

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