Spearheading tax reform
A major milestone has been reached in implementing a groundbreaking tax deal that addresses the tax challenges arising from the digitalisation of the economy, spearheaded by the G20 and the OECD
Less than two years after the Statement on the Two-Pillar Solution issued on 8 October 2021 to address the tax challenges arising from the digitalisation of the economy, the Organisation for Economic Co-operation and Development/G20 Inclusive Framework on Base Erosion and Profit Shifting has reached another major milestone, advancing the implementation of the groundbreaking deal. On 11 July 2023, 138 members of the Inclusive Framework approved an outcome statement, summarising the package of deliverables developed by the Inclusive Framework to implement the remaining elements of the Two-Pillar Solution.
The implementation
On Pillar One, the Inclusive Framework’s Task Force on the Digital Economy has delivered a text of a multinational convention, which will be the vehicle for the new taxing rights allocated to market jurisdictions with respect to the largest and most profitable multinational enterprises under Amount A. The MLC will now be prepared for signature expeditiously, with a signing ceremony to be organised by year-end. The 138 Inclusive Framework members that agreed on the outcome statement have also agreed to extend the ‘standstill’ agreement of the October 2021 deal and to refrain from imposing newly enacted digital services taxes or relevant similar measures on any company before 31 December 2024, or the entry into force of the MLC if earlier, provided the signature of the MLC has made sufficient progress by the end of the year. On Amount B, which will simplify transfer pricing rules for a wide range of distribution activities, the Inclusive Framework has delivered a framework that is now submitted to stakeholder inputs, before completion by the end of the year.
On Pillar Two, the Inclusive Framework has completed the work on the Subject to Tax Rule, which is an integral part of the Two-Pillar Solution and particularly important for developing countries.
Separately, the outcome statement acknowledges that implementation is well underway on the global minimum corporate tax rate under Pillar Two: to date, around 50 jurisdictions have taken steps towards implementing the global minimum tax. Based on the countries already implementing this tax, the OECD estimates that by 2025 almost 90% of global multinational enterprises with revenues above €750 million will be subject to the minimum effective tax rate of 15% in every jurisdiction where they operate. The work on agreed administrative guidance on the GloBE Rules and developing a peer review process continues.
Next steps
The Inclusive Framework is continuing to work with a few jurisdictions to resolve the final technical issues, after which the Multilateral Convention will be prepared for signature. The objective is to enable it to enter into force in 2025. On Amount B, the final report and inclusion of the simplified framework in the Transfer Pricing Guidelines will be completed by January 2024. The Multilateral Instrument to facilitate the implementation of the Subject-to-Tax Rule will be open for signature from 2 October 2023.
The outcome statement also calls on the OECD secretariat to prepare a comprehensive action plan to provide additional capacity-building support and ensure a swift and coordinated implementation. The OECD, which is already supporting countries and jurisdictions in these efforts, is in the process of ramping up its technical assistance activities, to ensure that Inclusive Framework members, and in particular developing countries, can fully benefit from the new rules.
Other contributions to the G20
Regarding tax transparency, in July the OECD reported steady progress on the implementation of the Standard for Automatic Exchange of Financial Account Information in Tax Matters. In 2022, information on more than 123 million financial accounts worldwide, covering total assets of above €12 trillion, was exchanged automatically, while the number of jurisdictions participating in the automatic exchange of information continued to increase. The OECD has also completed the technical work on the international exchange architecture for the Crypto-Asset Reporting Framework and amended Common Reporting Standard, delivered in October 2022.
In addition, the OECD delivered four reports to the G20 finance ministers and central bank governors in July 2023, including an updated report on the Roadmap on Developing Countries and International Tax. The other reports provide new analysis on enhancing international tax transparency on real estate, unleashing the potential of AEOI for developing countries and facilitating the use of tax-treaty exchanged information for certain non-tax purposes subject to the applicable conditions.
In advance of the G20 summit in New Delhi in September 2023, the OECD continues to make progress on the important work on international tax reform spearheaded by the G20 and looks forward to reporting on this to the G20 leaders.
