The Organisation for Economic Cooperation and Development (OECD) has finalised its reform of the international tax system to ensure that multinational enterprises (MNEs) will be subject to a minimum tax rate of 15 per cent from 2023. The two-pillar plan was agreed by 136 countries and jurisdictions (making up more than 90 per cent of the global gross domestic product) out of the 140 members of the OECD/G20 Inclusive Framework on anti-base erosion and profit shifting (BEPS). The pillars were announced in a political agreement in July and were endorsed by leading captive domiciles, including but not limited to Bermuda, Cayman Islands, Guernsey, Hong Kong, Jersey and Luxembourg. The OECD emphasises that the global minimum tax agreement is not designed to eliminate tax competition, but rather to implement multilaterally-agreed limitations on it. Under the reform, more than US$125 billion will be reallocated from around 100 of the most profitable MNEs to countries worldwide to guarantee that the organisations pay a share of tax in jurisdictions where they operate and generate profits. OECD secretary-general Mathias Cormann comments: “Today’s agreement will make our international tax arrangements fairer and work better. 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.” The two-pillar solution will be delivered to the G20 Finance Ministers meeting this week and to the G20 Leaders Summit at the end of the month. With the convention already under development, the OECD will establish model rules for introducing pillar two into domestic legislation and the countries will sign a multilateral convention in 2022, with implementation in 2023.
