130 countries join new OECD framework for international tax reform

OECD Secretary General Mathias Cormann says the new tax package will ensure that large multinational companies pay their fair share of tax everywhere. AFP

Nearly 130 countries have joined a two-pillar plan backing a global minimum tax regime to reform international taxation rules. The new rules will also ensure that multinational enterprises pay a fair share of tax wherever they operate.

Officials from 130 countries, representing almost 90 per cent of the world’s economy, met virtually on Thursday and agreed to the broad principles of the new rules. All of the Group of 20 economies are included.

“After years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share of tax everywhere,” OECD Secretary General Mathias Cormann said.

“This package does not eliminate tax competition, as it should not, but it does set multilaterally agreed limitations on it.”

The new agreement accommodates the 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,” Mr Cormann said.

A small group of the framework’s 139 members have not yet joined the statement, the Paris-based organisation said. The remaining elements of the framework, including the implementation plan, will be finalised in October.

Participants plan to implement the new agreement in 2023. The new framework updates key elements of the century-old international tax system.

The two-pillar package – the outcome of negotiations coordinated by the OECD for much of the last decade -- aims to ensure that large international firms pay tax where they operate and earn profits, while adding much-needed certainty and stability to the international tax system.

The first pillar aims to ensure a fairer distribution of profits and taxing rights among countries with respect to the largest firms, including digital companies. It would reallocate some taxing rights over multinationals from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.

Taxing rights on more than $100 billion of profit are expected to be reallocated to market jurisdictions each year.

The second pillar seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.

The global minimum corporate income tax - with a minimum rate of at least 15 per cent - is estimated to generate around $150bn in additional global tax revenues annually.

“The two-pillar package will provide much-needed support to governments needing to raise necessary revenues to repair their budgets and their balance sheets while investing in essential public services,” the OECD said.