UK and International Tax news
OECD Announces Reform Of International Taxation
Monday 11th October 2021
The OECD has announced major reform of the international tax system that should ensure in scope Multinational Enterprises will be subject to a minimum 15% tax rate from 2023.
The landmark deal, agreed by 136 countries and jurisdictions, representing more than 90% of global GDP, will also reallocate more than USD 125bn of profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide, ensuring that these enterprises pay tax wherever they operate and generate profits.
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. It updates and finalises the political agreement by members of the Inclusive Framework in July 2021 to fundamentally reform international tax rules.
Pillar One attempts a fairer distribution of profits and taxing rights among countries with respect to the largest and most profitable multinational enterprises. It will re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether enterprises have a physical presence there. MNE’s with global sales above EUR 20bn and profitability above 10% will fall within the scope of the new rules, with 25% of profit above a 10% threshold to be reallocated to market jurisdictions.
Taxing rights on more than USD 125bn 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 revenues.
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 750m and is estimated to generate around USD 150bn in additional global tax revenues annually.
The two-pillar solution will be delivered to the G20 Finance Ministers meeting in Washington D.C. on 13 October, then to the G20 Leaders’ Summit in Rome at the end of the month.
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