Tax competition is unlikely to disappear over the next five years. It is more likely to change form.
The Global Minimum Tax has made one important part of the old model harder for large multinational groups: competing primarily through very low effective corporate tax rates. But the same 2026 framework also shows why “the end of tax competition” is too simple. Jurisdictions still compete for real investment, people, headquarters, research, financing and decision-making. The tools can move from headline rates toward qualified incentives, talent regimes, infrastructure, energy, regulatory design, capital access and administrative certainty.
This is a forecast essay, not a claim that one path is predetermined. The factual baseline is 2026; the period to 2031 should be treated as scenarios with observable triggers.
Key takeaways
- Pillar Two narrows a margin; it does not abolish competition. The 15% minimum applies to in-scope multinational groups, generally above the EUR 750 million revenue threshold, not to every company everywhere.
- Competition can migrate from rates to inputs. Substance-linked incentives, skilled migration, R&D support, energy, capital markets and execution quality become relatively more important when pure rate competition is constrained.
- The next phase will be uneven. Domestic top-up taxes, safe harbours, local incentives and political choices mean jurisdictions will not converge into one identical tax-and-business model.
The 2026 baseline: a real minimum, with a defined scope
The OECD’s Pillar Two architecture is now operating through an increasingly detailed rule set. In broad terms, the Global Minimum Tax seeks to ensure a 15% effective minimum level of taxation for in-scope multinational enterprise groups, with a EUR 750 million revenue threshold central to the scope test.
That matters because it changes the economics of locating low-taxed profits in large multinational groups.
It does not mean that all companies face a universal 15% rate. Nor does it mean that every jurisdiction has implemented the rules in an identical way or on the same timetable.
By May 2026, the OECD’s Central Record showed dozens of jurisdictions whose IIR or domestic minimum top-up tax legislation had completed the transitional qualification process. The implementation map is therefore substantial, but still institutional rather than perfectly uniform.
The 2026 Side-by-Side package is evidence that the system is still evolving
In January 2026, the Inclusive Framework agreed a “Side-by-Side” package. It included simplifications, safe harbours and a new treatment for certain substance-based tax incentives, while preserving the role of qualified domestic minimum top-up taxes.
This is important for the future of tax competition.
If the international framework distinguishes between incentives connected to real substance and pure low-tax outcomes, governments have a reason to redesign their competitive tools rather than abandon competition.
The likely policy question becomes less:
“How close to zero can the corporate rate go?”
and more:
“What package can attract genuine investment without generating a top-up tax elsewhere or failing the applicable rules?”
That is a different competitive game.
Five margins that may matter more
1. R&D and substance-linked incentives
Tax credits and expenditure-based incentives can influence where real research and investment occur. The 2026 OECD package’s treatment of qualifying substance-based incentives makes this margin particularly relevant.
The risk is obvious: governments can waste public money subsidising activity that would have happened anyway. An incentive is not automatically good policy because it survives Pillar Two.
2. Talent and residence regimes
If mobile founders, engineers, researchers and executives affect where businesses grow, countries can compete through immigration speed, personal-tax regimes, family access and the predictability of residence rules.
This form of competition is politically sensitive because preferential regimes can create perceived unfairness between newcomers and existing residents.
3. Energy, infrastructure and operating cost
For manufacturing, data centres, logistics and energy-intensive activity, tax may be only one line in a much larger location model. Reliable power, grid access, ports, digital infrastructure and land can dominate a small corporate-rate difference.
A jurisdiction that cannot supply the physical inputs of an industry cannot compensate indefinitely with a tax headline.
4. Capital and legal infrastructure
Deep capital markets, predictable courts, shareholder law, restructuring mechanisms and access to financing can attract corporate activity even where nominal tax is higher.
This is one reason tax competition cannot be analysed separately from institutional competition.
5. Administrative certainty
Speed and predictability are themselves economic assets. A lower nominal rate can be offset by uncertain licensing, slow rulings, unstable interpretation or repeated compliance friction.
As rate differentials narrow for large groups, the value of knowing what the rules mean and being able to execute them can rise.
The strongest objection: coordination can spread beyond rates
There is a strong counterargument to the “competition just moves elsewhere” thesis.
Governments can coordinate not only rates but also tax bases, reporting, subsidy controls, state aid, beneficial ownership and anti-abuse rules. Political pressure can also target preferential residence regimes or sector-specific incentives. If coordination expands far enough, the room for meaningful policy differentiation may narrow on several dimensions at once.
That is possible.
There is also a second objection: competing through subsidies can be worse than competing through rates. A transparent low rate applies broadly; a negotiated incentive can favour incumbents, politically selected industries or firms sophisticated enough to capture it.
The future form of competition is therefore not automatically more efficient or more liberal.
Three scenarios to 2031
These are scenarios, not predictions.
Scenario A — Competition migrates to real activity
Trigger: Pillar Two implementation remains broadly stable and substance-based incentives remain workable.
Jurisdictions compete more aggressively for payroll, research, physical investment, headquarters functions and highly skilled people. Headline corporate rates matter less for very large groups; infrastructure and targeted incentives matter more.
Scenario B — Coordination broadens
Trigger: political consensus grows around limiting not only low rates but also preferential incentives and mobile-person regimes.
The range of tax differentiation narrows further. Competition moves toward non-tax variables: energy, regulation, capital, quality of government and lifestyle.
Scenario C — A more fragmented tax order
Trigger: major economies increasingly operate parallel minimum-tax systems, safe harbours or domestic approaches rather than one tightly convergent architecture.
The result is not a return to the old offshore model. It is a more complex environment in which multinational groups model several overlapping minimum-tax and incentive systems.
Small states do not automatically win the new competition
A compact jurisdiction may legislate quickly and offer administrative access. That can be valuable.
But smallness also limits labour pools, energy systems, domestic capital markets and administrative depth. A large federal country can create powerful competition among states or cities while maintaining national-scale infrastructure. An open market can make a small country viable; a closed small market can make scale a constraint.
Again, the variables must remain separate: size, decentralisation, openness and exit.
Tax competition will increasingly reward the package rather than the slogan.
What to watch instead of guessing
The next five years should be followed through observable changes rather than ideological predictions.
Watch how many jurisdictions maintain qualified domestic minimum top-up taxes. Watch how the OECD treats substance-based incentives. Watch whether countries redesign R&D and investment credits. Watch the politics of preferential regimes for incoming talent. Watch whether capital-market, energy and licensing reforms become more important in competitiveness strategies. And watch whether major economies converge or build parallel tax architectures.
The most likely mistake is to assume that tax competition either “won” or “ended”.
Competition between jurisdictions is broader than one corporate tax rate. When one margin closes, the value of the remaining margins changes.
The next five years will reveal where that competition migrates.
Sources
- OECD — Global Minimum Tax
- OECD — Global Anti-Base Erosion Model Rules (Pillar Two)
- OECD — International community agrees way forward on global minimum tax package, 5 January 2026
- OECD — Central Record for purposes of the Global Minimum Tax
- OECD — MNE Responses to the Global Minimum Tax, 2026
Disclaimer
This article separates a 2026 factual baseline from scenarios through 2031. The scenarios are general policy analysis, not forecasts or tax advice. Pillar Two outcomes depend on group scope, jurisdictional implementation and subsequent OECD and domestic changes. Current rules should be verified before any transaction or location decision.
