Grace Perez-Navarro
Director of the Centre for Tax Policy and Administration, OECD
The implementation of the two-pillar solution will stabilise the international tax rules, enhance tax certainty and improve the fairness of the international tax system.
As part of a landmark agreement reached in October 2021, 138 countries and jurisdictions have agreed to a two-pillar solution to reform the international tax rules to address the tax challenges arising from the digitalisation and globalisation of the economy.
The first-ever global minimum tax
Pillar Two of this agreement will help countries protect their corporate tax bases, through the introduction of a global minimum corporate tax for multinational enterprises (MNEs), at an effective tax rate of 15%.
The global minimum tax (the Global Anti-Base Erosion [GloBE] rules) will put a floor on tax competition and will ensure that MNEs pay a fair share of tax wherever they operate and generate profits. The minimum tax does not seek to eliminate tax competition but puts multilaterally agreed limitations on it.
The OECD estimates that the global minimum tax will result in annual global revenue gains of around USD 220 billion — or 9% of global corporate income tax revenues. Pillar Two also safeguards the right of developing countries to withhold tax on certain base-eroding payments — like interest and royalties — if they are not subjected to a minimum rate of tax, through the ‘Subject to tax rule’ (STTR).
The minimum tax does not seek to
eliminate tax competition but puts
multilaterally agreed limitations on it.
Progress on implementation
Since the agreement was reached, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting has released the GloBE model rules commentary, as well as technical guidance to assist countries in implementing the minimum tax — and work on the STTR is well-advanced.
With many countries taking steps towards implementation — including 27 EU member states, Australia, Canada, Colombia, Hong Kong (China), Japan, Korea, South Africa, Singapore, Switzerland, United Kingdom and many other jurisdictions — the global minimum tax is already a reality.
We estimate that almost 90% of global multinational entities with revenue above the EUR 750 million threshold will be subject to the minimum tax by 2025. Regional initiatives are also underway to implement the global minimum tax, notably with the release by the African Tax Administration Forum of a Suggested Approach to Drafting Domestic Minimum Top-Up Tax Legislation.