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The landmark deal, agreed by 136 countries and jurisdictions
representing more than 90% of global GDP, will also reallocate more than
USD 125 billion of profits from around 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.
Following years of intensive negotiations to bring the international tax system 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.
It updates and finalises a July political agreement by members of the
Inclusive Framework to fundamentally reform international tax rules.
With Estonia, Hungary and Ireland having joined the agreement, it is
now supported by all OECD and G20 countries. Four countries - Kenya,
Nigeria, Pakistan and Sri Lanka - have not yet joined the agreement.
The two-pillar solution will be delivered to the G20 Finance
Ministers meeting in Washington D.C. on 13 October, then to the G20
Leaders Summit in Rome at the end of the month.
The global minimum tax agreement does not seek to eliminate tax
competition, but puts multilaterally agreed limitations on it, and will
see countries collect around USD 150 billion in new revenues annually.
Pillar One will ensure a fairer distribution of profits and taxing
rights among countries with respect to the largest and most profitable
multinational enterprises. It will re-allocate some taxing rights over
MNEs from their home countries to the markets where they have business
activities and earn profits, regardless of whether firms have a physical
presence there. Specifically, multinational enterprises with global
sales above EUR 20 billion and profitability above 10% - that can be
considered as the winners of globalisation - will be covered by the new
rules, with 25% of profit above the 10% threshold to be reallocated to
market jurisdictions.
Under Pillar One, taxing rights on more than USD 125 billion of
profit are expected to be reallocated to market jurisdictions each year.
Developing country revenue gains are expected to be greater than those
in more advanced economies, as a proportion of existing revenues.
Pillar Two introduces a global minimum corporate tax rate set at 15%.
The new minimum tax rate will apply to companies with revenue above
EUR 750 million and is estimated to generate around USD 150 billion in
additional global tax revenues annually. Further benefits will also
arise from the stabilisation of the international tax system and the
increased tax certainty for taxpayers and tax administrations.
“Today’s agreement will make our international tax arrangements
fairer and work better,” said OECD Secretary-General Mathias Cormann.
“This is a major victory for effective and balanced multilateralism. It
is a far-reaching agreement which ensures our international tax system
is fit for purpose in a digitalised and globalised world economy. We
must now work swiftly and diligently to ensure the effective
implementation of this major reform,” Secretary-General Cormann said.
Countries are aiming to sign a multilateral convention during 2022,
with effective implementation in 2023. The convention is already under
development and will be the vehicle for implementation of the newly
agreed taxing right under Pillar One, as well as for the standstill and
removal provisions in relation to all existing Digital Service Taxes and
other similar relevant unilateral measures. This will bring more
certainty and help ease trade tensions. The OECD will develop model
rules for bringing Pillar Two into domestic legislation during 2022, to
be effective in 2023.
Developing countries, as members of the Inclusive Framework on an
equal footing, have played an active role in the negotiations and the
Two-Pillar Solution contains a number of features to ensure that the
concerns of low-capacity countries are addressed. The OECD will ensure
the rules can be effectively and efficiently administered, also offering
comprehensive capacity building support to countries which need it.