Some 130 countries and jurisdictions have joined a new two-pillar plan to reform international taxation rules, according to the Organisation for Economic Co-operation and Development (OECD).
The two-pillar package aims to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits, while adding “much-needed certainty” and stability to the international tax system.
Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies.
It would also 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 firms have a physical presence there.
In addition, Pillar Two 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.
It will also aim to 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, infrastructure and the measures necessary to help optimise the strength and the quality of the post-Covid recovery.
Mathias Cormann, secretary-general, OECD, said: “After years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share of tax everywhere.
“It also accommodates the various 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.”