OECD/G20 Tax challenges of globalisation and digitalisation

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Inclusive Framework) has released the text of a new multilateral convention that updates the international tax framework to co-ordinate a reallocation of taxing rights to market jurisdictions, improve tax certainty, and remove digital service taxes. The publication of the convention moves the international community a step closer towards finalisation of the Two-Pillar Solution to address the tax challenges arising from the digitalisation and globalisation of the economy.

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The Multilateral Convention to Implement Amount A of Pillar One (the MLC) published today reflects the current consensus achieved among members of the Inclusive Framework. Amount A of Pillar One co-ordinates a reallocation of taxing rights to market jurisdictions with respect to a share of the profits of the largest and most profitable multinational enterprises (MNEs) operating in their markets, regardless of their physical presence. It also ensures the repeal and prevents the proliferation of digital services taxes and relevant similar measures, secures mechanisms to avoid double taxation, and enhances stability and certainty in the international tax system.

The release of the MLC represents significant progress towards practical implementation of the October 2021 landmark agreement to bring international tax policy fully into the 21^st Century. As noted in the MLC, there are different views on a handful of specific items noted in footnotes by a small number of jurisdictions, who are constructively engaged in resolving these differences.

The MLC will be delivered to G20 Finance Ministers and Central Bank Governors in a new OECD Secretary-General Tax Report ahead of their meeting in Morocco this week.

“The international community has been working closely to resolve the remaining technical issues behind their landmark agreement to reform international taxation,” OECD Secretary-General Mathias Cormann said. “The text of the Multilateral Convention released today provides governments with the basis for the co-ordinated implementation of this fundamental reform to the international tax system and represents significant progress towards opening the Convention for signature. Countries now have the means to swiftly move forward with the steps necessary to secure signature and ratification, and we are ramping up our support for developing countries, to ensure we can deliver on our goal of making the international tax system fairer and work better in the digitalised world.”

Accompanied by an Explanatory Statement and the Understanding on the Application of Certainty of Amount A, the MLC provides for a co-ordinated system of taxation and sets out the substantive features necessary for it to be prepared for signature, including its scope and operation. The MLC also includes several provisions designed to address the unique circumstances of developing Inclusive Framework members.

Under Pillar One, taxing rights on about USD 200 billion in profits are expected to be reallocated to market jurisdictions each year. This is expected to lead to annual global tax revenue gains of between USD 17‑32 billion, based on 2021 data. New analysis finds that low and middle-income countries are expected to gain the most as a share of existing corporate income tax revenues, underlining the importance of swift and widespread implementation of the reforms.

The Inclusive Framework is also making good progress on Pillar Two. With the opening for signature of the multilateral instrument to implement the Subject to Tax Rule (STTR), the work on the STTR is now largely complete. The STTR is a treaty-based rule that allows developing countries to “tax back” where certain intra-group payments are subject to nominal corporate income tax rates below 9%.

Pillar Two also introduces model rules for the global minimum tax that countries may implement into their domestic law which will ensure large MNEs are subject to an effective tax rate of 15% on their profits in every jurisdiction where they operate. The global minimum tax is expected to raise up to USD 200 billion in additional revenue annually. A new Minimum Tax Implementation Handbook will assist governments as they consider moving forward with the global minimum tax under Pillar Two. It provides an overview of the key provisions of the rules and the considerations to be taken into account by tax policy and administration officials and other stakeholders in assessing implementation options.

The text of the MLC, along with the Explanatory Statement, the Understanding on the Application of Certainty of Amount A, as well as a brochure, are available at: https://www.oecd.org/tax/beps/multilateral-convention-to-implement-amount-a-of-pillar-one.htm

More information

KEY DOCUMENTS

Text of the MLC

• English - published 11 October 2023
• Français (à venir)

Explanatory Statement to the MLC

• English - published 11 October 2023
• Français (à venir)

Understanding on the Application of Certainty for Amount A of Pillar One

• English - published 11 October 2023
• Français (à venir)

Overview

• English - published 11 October 2023
• Français - publié le 11 octobre 2023

Further information on the continuing international tax reform is also available at: https://oe.cd/bepsaction1.