A new era for tax
Reforming the international tax system will deliver significant dividends – raising revenues and ensuring that all countries, including developing countries, move forward together
One year ago, a groundbreaking deal to reform the international taxation system was agreed and joined by 137 countries and jurisdictions, representing more than 94% of global gross domestic product. The agreement is based on a two-pillar approach: Pillar One introduces a new taxing right that will allow market jurisdictions to tax profits from some of the largest multinational enterprises, and Pillar Two introduces a global minimum corporate tax rate for the first time. Since this agreement on the ‘Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy’, technical work continues at a pace to turn this historic deal into reality.
The two-pillar solution
Progress continues on Pillar One. In July, the substantive rules for Amount A of Pillar One (the new taxing right) were released for comment, resulting in more than 70 stakeholders providing more than 700 pages of detailed feedback, which was discussed in September at a public consultation meeting in Paris. Based on the comments received through such consultations, those responsible for the Inclusive Framework are drafting the Multilateral Convention necessary to implement Amount A of Pillar One to be open for signature by mid-2023. In addition, work is progressing to simplify the application of the arm’s length principle to baseline distributors (Amount B), with a plan to release a draft for public consultation by year-end.
On Pillar Two, the technical work on the Global Anti-Base Erosion (GloBE) rules and its commentary were finalised by March this year. Many countries have already begun the legislative process to implement the minimum tax or have announced plans to do so shortly. Later this year the Organisation for Economic Co-operation and Development will release the Implementation Framework, to help facilitate implementation while minimising compliance costs. The important work on the subject-to-tax rule is also underway.
Other contributions
As regards tax transparency, the implementation of the standard on the Automatic Exchange of Financial Account Information in Tax Matters continues to yield results. Last year alone, 100 jurisdictions exchanged information under AEOI on 111 million financial accounts, with a total value of €11 trillion. OECD- and G20-led tax transparency efforts produced to €112 billion in additional revenues for governments through voluntary disclosure programmes, offshore tax investigations and related measures. Members of the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes have received over 370,000 requests for information since 2009, enabling the identification or collection of at least €11 billion in additional tax.
In response to the G20’s call to ensure that the transformations in global tax transparency standards cannot be undermined by new technologies, the OECD is also currently working to modernise tax transparency tools in the context of the development of new digital assets, including through the new Crypto-Asset Reporting Framework and updates to the Common Reporting Standard.
The implementation of international tax standards, including the successful implementation of the Two-Pillar Solution, will help raise revenues and ensure that all countries, including developing countries, continue to advance together in the reforms of the international tax system. Building tax capacity remains a priority. The OECD continues to assist developing countries with capacity building through its bilateral programmes, regional initiatives and the Global Relations Programme on Taxation. Following the October 2021 report on Developing Countries and the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, the OECD prepared a follow-up report, the G20/OECD Roadmap on Developing Countries and International Taxation, ahead of the October 2022 meeting of the G20 finance ministers and central bank governors.
As always, the OECD will continue to advance the important work on international tax reform spearheaded by the G20.
