Breakthrough in global tax reform

Monday, 2021-10-11 12:02:39
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OECD Secretary-General Mathias Cormann, when he was Australian finance minister. (Photo: AFP/VNA)
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NDO - The Organisation for Economic Co-operation and Development (OECD) has announced that the major reform of the international tax system finalised at the OECD would ensure that Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023. This is considered a breakthrough, towards a more balanced and efficient global tax system.

Preventing organisations and businesses from taking advantage of loopholes or "gray areas" of the law to evade taxes has been a longstanding problem for governments. In the context of economies facing challenges due to the impact of the epidemic, the goal of preventing tax revenue erosion has become even more urgent.

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.

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

Under Pillar One, taxing rights on more than US$ 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 revenue.

Pillar Two introduces a global minimum corporate tax rate set at 15%. The new minimum tax rate will apply to companies with revenue above EUR 750 million (US$870 million) and it is estimated will generate around US$ 150 billion in additional global tax revenues annually. Further benefits will also arise from the stabilisation of the international tax system and increased tax certainty for taxpayers and administrations.

OECD Secretary-General Mathias Cormann said “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.”.

Many countries share the view that this is an important and highly agreeable step, making the international tax arrangements fairer and work better.

Representatives of Facebook and Amazon assessed its as “progress towards a consensus-based solution for international tax harmonization.

Meanwhile, experts warn that the agreement still has to go through many "gates" to take effect, because each participating member has its own approval and implementation process. However, the fact that 136 countries and jurisdictions, representing more than 90% of global GDP, have agreed to the plan, beckons a promising future for fairer tax policy on a worldwide scale.