The Global Minimum Tax and Special Economic Zones

The document argues that the Global Minimum Tax (GMT) reduces the effectiveness of traditional corporate tax incentives in SEZs, such as tax holidays and reduced rates, for large multinational enterprises. It suggests that countries should shift from profit-based tax competition toward improving the overall investment environment and utilizing non-fiscal incentives. The brief also warns of legal risks associated with reforming these incentives, specifically regarding investor-state dispute settlements (ISDS) and stabilization clauses, while recommending that SEZs be leveraged to support the energy transition and renewable energy investment.

• The Global Minimum Tax (GMT), specifically the GloBE rules, minimizes the effectiveness of corporate tax incentives for multinational enterprises (MNEs) with annual consolidated revenue exceeding EUR 750 million. If the effective tax rate (ETR) in a jurisdiction falls below 15%, a top-up tax is applied, meaning in-scope MNEs may no longer benefit from absolute exemptions, reduced fixed rates, or exemptions dependent on performance requirements.
• Research indicates that tax incentives in SEZs are often ineffective for long-term global competitiveness and zone performance. While they may attract initial foreign direct investment, they can lead to a 'race to the bottom' and may result in poor export and employment performance over time.
• Reforming SEZ tax incentives carries legal risks, as changes may conflict with investor protections in domestic laws, investment contracts, and bilateral investment treaties (BITs). Specifically, fiscal stabilization clauses can increase the risk of breach, and some arbitral tribunals may view SEZ residency as a guarantee of the most favourable investment conditions, potentially leading to claims of indirect expropriation.
• The Forum on Harmful Tax Practices (FHTP) has previously targeted SEZs that use preferential tax regimes for geographically mobile activities. Since 2000, this work has led to the abolition of eight SEZs and the identification of 31 others with harmful features requiring amendment.
• To improve SEZ outcomes, countries are encouraged to shift from profit-based incentives to cost-based incentives (such as capital allowances and depreciation), which are generally not impacted by GloBE. There is also a recommended focus on non-fiscal incentives, including infrastructure, skilled labour, and streamlined administration.
• SEZs can be utilized as models for the energy transition to incubate sustainable energy investment. This requires a shift toward incentives tailored for renewable energy, such as production-based tax credits in developing countries or feed-in tariffs and auctions in developed countries.

APA

Ndubai-Ngigi, J. W., & Readhead, A. (2024). The Global Minimum Tax and Special Economic Zones. International Institute for Sustainable Development. https://www.iisd.org/system/files/2024-07/global-minimum-tax-special-economic-zones.pdf

Chicago

Ndubai-Ngigi, Joy Waruguru, and Alexandra Readhead. The Global Minimum Tax and Special Economic Zones. International Institute for Sustainable Development, 2024. https://www.iisd.org/system/files/2024-07/global-minimum-tax-special-economic-zones.pdf.

Wikipedia

{{cite report |last1=Ndubai-Ngigi |first1=Joy Waruguru |last2=Readhead |first2=Alexandra |title=The Global Minimum Tax and Special Economic Zones |publisher=International Institute for Sustainable Development |date=July 2024 |url=https://www.iisd.org/system/files/2024-07/global-minimum-tax-special-economic-zones.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{ndubaingigi2024global, author = {Ndubai-Ngigi, Joy Waruguru and Readhead, Alexandra}, title = {{The Global Minimum Tax and Special Economic Zones}}, institution = {International Institute for Sustainable Development}, year = {2024}, month = jul, url = {https://www.iisd.org/system/files/2024-07/global-minimum-tax-special-economic-zones.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }