In an historic agreement by 136 countries, major reform of the international tax system has been finalised at the OECD, ensuring that Multinational Enterprises (MNEs) will be subject to a minimum tax rate of 15% from 2023.

Following years of intensive negotiations to bring international tax into the 21st century, 136 jurisdictions (out of the 140 members of the OECD/G20 Inclusive Framework on BEPS) joined the Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy. This Statement finalises the political agreement made in July 2021 to fundamentally reform international tax rules.

The Statement is now supported by all OECD and G20 countries, though four countries – Kenya, Nigeria, Pakistan and Sri Lanka – have not yet joined. This landmark deal was agreed by 136 countries and jurisdictions which represent over 90% of global GDP.

The European Commission’s economics commissioner, Paolo Gentiloni, said, “With 136 jurisdictions on board, including all G20 members, all OECD members and all EU Member States that are part of the Inclusive Framework, this is nothing less than a tax revolution.”

Pillar One of the Two-Pillar Solution will ensure a fairer distribution of profits and taxing rights among countries. It will re-allocate some taxing rights from MNE’s home countries to the markets where they have business activities and earn profits, whether firms have a physical presence or not.  This specifically applies to MNEs with global sales above €20 billion and profitability above 10% – those companies which can be considered winners of globalisation – with 25% of profit above the 10% threshold to be reallocated to market jurisdictions.

Pillar Two introduces a global minimum corporate tax rate of 15%.  This new minimum rate will apply to companies achieving revenue over €750 million and will generate around US$150 billion in additional global tax revenues each year, as well as providing increased tax compliance, stabilisation of tax systems, and help to ease trade tensions.

The Global Minimum Tax Agreement puts multilateral limitations on taxation and will see countries collect around US$150 billion in new revenues annually. The Agreement will also reallocate over US$125 billion of revenues each year from c. 100 of the world’s largest and most profitable MNEs to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits.

Countries are aiming to sign a multilateral convention during 2022, with effect from 2023. The convention is already being developed, and will be the vehicle for implementing taxing rights under Pillar One, as well as for the halt and removal provisions of all existing Digital Services Taxes and other similar relevant unilateral measures.

The Two-Pillar Solution was agreed by all G20 countries, but will be delivered to the G20 Leaders’ Summit in Rome at the end of October 2021.

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Marta Reguera

Marta Refuera Pradas
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