Updated on Friday, 8 October 2021 – 19:39
The deal will reallocate more than $ 125 billion of profits from around 100 of the multinationals to countries around the world.
A group of people in a Dublin business area.
The OECD announced this Friday “an innovative tax agreement for the digital age” whereby 136 countries will establish a minimum tax of 15% on companies from 2023 and to reallocate between countries more than 125,000 million dollars a year.
“The major reform of the international tax system finalized today at the OECD to ensure that Multinational Enterprises (MNEs) are subject to a minimum tax rate of 15% as of 2023“, the organization has indicated in a statement in which it highlighted the” historic agreement, agreed by 136 countries and jurisdictions that represent more than 90% of world GDP. “
The agreement, the OECD explained, reallocate more than $ 125 billion of profit from around 100 of the “largest and most profitable” multinationals to countries around the world, “ensuring that these companies pay a fair share of tax wherever they operate and generate profits.”
With Estonia, Hungary and Ireland joining the agreement, it now has the support of all OECD and G20 countries. Four countries: Kenya, Nigeria, Pakistan and Sri Lanka, have not yet joined the agreement.
The agreement, the OECD stressed, “does not seek to eliminate tax competition, but imposes multilaterally agreed limitations on it and will make countries collect around 150,000 million dollars in new income annually.”
The agreement, based on two pillars, will be taken to the G20 finance ministers meeting in Washington on October 13, and then to the G20 in Rome at the end of the month.
On the one hand, the Pillar One ensure “a fairer distribution of profits and tax rights between countries with respect to the largest and most profitable multinational companies.” To do this, reassign some tax rights on multinational companies from their countries of origin to the markets where they do business and make profits, regardless of whether the companies have a physical presence there.
Specifically, multinational companies with global sales of more than 20,000 million euros and a profitability of more than 10%, which the OECD considers “winners of globalization”, will be affected by the new rules, with 25% of profits above the 10% threshold being reallocated to the market.
Thus, tax duties on more than $ 125 billion in profits are expected to be reallocated to market jurisdictions each year. The OECD expects that the income gains of developing countries will be greater than those of the more advanced economies, as a proportion of existing income.
Regarding the Pillar Two, introduces a global minimum corporate tax rate of 15% that is applied to companies with revenues of more than 750 million euros. The OECD estimates that it will generate around $ 150 billion in additional global tax revenue annually.
The Secretary General of the OECD, Mathias Cormann, stressed that “today’s agreement will make our international tax agreements fairer and work better.” “This is a great victory for an effective and balanced multilateralism,” he continued, adding that “it is a far-reaching agreement that ensures that our international tax system is fit for purpose in a digitized and globalized world economy.” “We must now work quickly and diligently to ensure the effective implementation of this important reform,” he concluded.
The countries aim to sign a multilateral convention during 2022, with effective implementation of the measures in 2023. In this sense, the OECD indicated that the convention will be the vehicle for the implementation of the tax law agreed under Pillar One, as well as for suspension and reform provisions in relation to all existing digital service taxes and other similar relevant unilateral measures. This, the organization stressed, “will bring more certainty and help ease trade tensions.”
Regarding Pillar Two, the OECD will develop model rules to incorporate it into national legislation during 2022 for its entry into force in 2023.
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