Document Type


Publication Date

Summer 8-1-2022

Publication Citation

29 Indiana J. Global Legal Studies 231 (2022)


In striving to slow the spread of the COVID-19 pandemic, governments across the globe acted quickly to implement various "stayat- home" orders and bans on all "non-essential activities." While these actions were likely effective in slowing the spread of the virus, the economic impacts were felt almost immediately. The US deficit rose to $3.1 trillion following massive spending to aid individuals and small businesses. Internationally, governments have been increasing their debt loads to combat both the health and financial impacts of the pandemic. Indeed, by the end of 2020, the international debt load increased to a record-breaking $281 trillion. Almost as quickly, various proposals have been offered regarding how to mitigate this pandemicfueled deficit. One solution offered is the return of a historical tax scheme-an excess profits tax. Excess profits taxes have historically been applied both domestically and internationally during times of war. Although there are variations in how an excess profits tax is calculated, traditionally, an excess profits tax is applied to those companies who earn returns in excess of a set "normal" rate of return.

Despite variations in how excess has been calculated under the historical versions of excess profits taxes, all have been implemented on a purely temporary basis to raise revenue for a particular crisis. One recent COVID-19 excess profits tax proposal, however, suggests taking a different approach. Professor Allison Christians and Dr. Tarcisio Diniz Magalhaes propose the implementation of a global excess profits (GEP) tax which aims to immediately address the fiscal crisis resulting from the COVID-19 pandemic by taxing those companies whose profits are especially fueled by "high tech and unique intangibles" and redistribute such wealth to developing countries. Professor Christians and Dr. Magalhaes assert that, unlike with historical excess profits taxes, new tools made available by leveraging technology and increased globalization will make a modern-day excess profits tax more successful on a global scale. Indeed, Professor Christians and Dr. Magalhaes propose implementing a GEP tax to effectively address the challenges brought on by an increasingly digital global economy.

This note argues that, while Professor Christians and Dr. Magalhaes's GEP tax proposal improves upon some of the weaknesses of the historical excess profits taxes by leveraging new tools developed by the Organisation for Economic Co-operation and Development (OECD), their proposal, which utilizes a uniform, flat percentage for determining excess profits, remains largely inaccurate and thus will have inequitable results. Indeed, this note argues that Professor Christians and Dr. Magalhaes's GEP tax proposal does not go far enough in leveraging the new tools made available by the OECD's digitalization project in order to create both an equitable and effective GEP tax.

Part II of this note will provide a historical overview of the experiences with various versions of excess profits taxes both domestically and internationally. Part III describes the modern context, which calls for the return of the excess profits tax. More specifically, it describes the rising profits of digital multinational corporations and the challenges of effectively taxing those profits, especially in light of the global economic strain resulting from the pandemic. Considering these issues, Part IV summarizes and highlights the key aspects of Professor Christians and Dr. Magalhaes's proposal for implementing a GEP tax. Part V evaluates their proposal considering the lessons learned from the historical experiences with excess profits taxation. It evaluates their proposal, as well as historical excess profits taxes, on several accepted principles of sound tax policy, including accuracy, administrability, transparency, and the extent to which their proposal minimizes tax avoidance. Finally, Part VI proposes that the GEP tax proposal be revised to leverage even further the new tools and data that were unavailable during historical applications of excess profits taxes. This note argues that international taxing authorities now have access to the data necessary to calculate nuanced rates of return at the firm level, making the tax significantly more equitable across firms and industries and limiting opportunities for avoiding the tax.

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