OECD Finalises Major Reform Of International Tax System, Fixes Minimum 15 Per Cent Tax On Multinational Corporations

OECD Finalises Major Reform Of International Tax System, Fixes Minimum 15 Per Cent Tax On Multinational Corporations

by Swarajya Staff - Oct 9, 2021 12:06 PM +05:30 IST
OECD Finalises Major Reform Of International Tax System, Fixes Minimum 15 Per Cent Tax On Multinational CorporationsOECD

The Organisation for Economic Cooperation and Development (OECD) on Friday (8 October) finalised a major reform of the international tax system, which will ensure that the the multinational corporations (MNCs) will be subject to a minimum tax of 15 per cent from 2023.

The framework, supported by 136 countries including India, seeks to ensure that the MNCs and global digital firms including Google and Netflix pay a fair share of tax in the countries where they operate and generate profits.

"The landmark deal, agreed by 136 countries and jurisdictions representing more than 90 per cent 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," the OECD said in a statement.

"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," it added.

The two-pillar solution will be delivered to the G20 Finance Ministers meeting in Washington DC on 13 October, then to the G20 Leaders Summit in Rome at the end of the month.

Countries are aiming to sign a multilateral convention during 2022, with effective implementation in 2023, it said.

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 implies that India will have to withdraw its equalisation levy that it imposes on overseas digital companies.

The OECD will develop model rules for bringing Pillar Two into domestic legislation during 2022, to be effective in 2023.

Under Pillar One, taxing rights on more than $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 per cent. The new minimum tax rate will apply to companies with revenue above 750 million Euros and is estimated to generate around $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, the OECD said.

New Delhi has backed the OECD-Base Erosion Profit Shifting talks since the beginning and has been keen on the deal, reports Economic Times.

Four countries - Kenya, Nigeria, Pakistan and Sri Lanka, (out of the 140 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting) - have not yet joined the agreement, it added.

“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,” Cormann added.

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