A total of 131 countries and jurisdictions, including several significant captive domiciles, have joined the Organisation for Economic Co-operation and Development’s (OECD) two-pillar plan to create a framework for international tax reform.
Presented in a report to G20 finance ministers and central bank governors, the framework will update the current international tax system to accommodate the evolving globalised and digitalised economy by ensuring that large multinational enterprises (MNEs) pay tax where they operate and make profit.
This will allow governments to generate the revenue necessary to repair budgets and balance sheets, while making investments in public services, infrastructure and COVID-related recovery.
The plan was adopted by several leading captive domiciles, including the Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Guernsey, Hong Kong, Jersey, Luxembourg and the US.
The first pillar aims to ensure a fairer distribution of profits by re-allocating some taxing rights over MNEs (estimated to total over $100 billion) from their home countries to the jurisdictions in which they operate and earn profit, even if they do not have a physical office there.
The second pillar aims to control competition over corporate income tax by enforcing the global anti-base erosion and income inclusion rules to establish a global minimum corporate tax rate of at least 15 per cent to protect national tax bases. This is predicted to produce an additional $150 billion in annual global tax revenues.
Mathias Cormann, secretary-general of the OECD, explains: “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”, he adds.
The implementation plan will be finalised in October 2021, and is expected to be enforced in 2023.
