MercoPress. South Atlantic News Agency

International tax rules reform: 130 countries support minimum 15% rate on large multinationals’ profits

“Large multinational companies will now pay their fair share of taxes around the world,” said Cormann

Following two days of discussions hosted by Paris based Organization for Economic Cooperation and Development, OECD, 130 countries, representing more than 90% of global GDP, joined a new two-pillar plan to reform international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate. But Ireland and eight other countries decline to accept the agreement.

The new framework for international tax reform updates key elements of the century-old tax system, which is no longer fit for purpose in a globalised and digitalized 21st century economy. It is expected to be in October.

The two-pillar package – the outcome of negotiations coordinated by the OECD for much of the last decade - aims to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits, while adding much-needed certainty and stability to the international tax system.

Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies. It would 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.

Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.

The two-pillar package will provide much-needed support to governments needing to raise necessary revenues to repair their budgets and their balance sheets while investing in essential public services, infrastructure and the measures necessary to help optimize the strength and the quality of the post-COVID recovery.

Under Pillar One, taxing rights on more than US$ 100 billion of profit are expected to be reallocated to market jurisdictions each year. The global minimum corporate income tax under Pillar Two - with a minimum rate of at least 15% - is estimated to generate around US$ 150 billion in additional global tax revenues annually. The agreed 15% rate would apply to companies with a turnover above a €750 million threshold.

Additional benefits will also arise from the stabilization of the international tax system and the increased tax certainty for taxpayers and tax administrations.

“After years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share of tax everywhere,” OECD Secretary-General Mathias Cormann said.

“This package does not eliminate tax competition, as it should not, but it does set multilaterally agreed limitations on it. It also accommodates the various interests across the negotiating table, including those of small economies and developing jurisdictions. It is in everyone’s interest that we reach a final agreement among all Inclusive Framework Members as scheduled later this year,” Mr Cormann said.

Participants in the negotiation have set an ambitious timeline for conclusion of the negotiations. This includes an October 2021 deadline for finalizing the remaining technical work on the two-pillar approach, as well as a plan for effective implementation in 2023. Ireland declined to back a global effective 15% tax rate because it has managed to lure several tech giants, Apple, Facebook, with a lower rate of 12%