OECD finalizes major reform of international tax system and sets 15% minimum tax on multinational corporations

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The Organization for Economic Co-operation and Development (OECD) finalized on Friday, October 8 a major reform of the international tax system, which will ensure that multinational companies (MNEs) will be subject to a minimum tax of 15% from 2023..

The framework, backed by 136 countries including India, aims to ensure that multinationals and global digital companies, including Google and Netflix, pay a fair share of tax in the countries where they operate and generate profits.

“The landmark deal, reached by 136 countries and jurisdictions representing over 90% of global GDP, will also reallocate more than $ 125 billion in profits from around 100 of the world’s 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, ”the OECD said in a statement.

“After years of intensive negotiations to bring the international tax system into the 21st century, 136 jurisdictions (out of 140 members of the OECD / G20 Inclusive Framework on BEPS) have joined the Declaration on the Two-Pillar Solution to Addressing Tax Challenges that arise. of the digitization of the economy. It updates and finalizes a political agreement reached in July by members of the Inclusive Framework to fundamentally reform international tax rules, ”he added.

The two-pillar solution will be delivered to the G20 finance ministers meeting in Washington DC on October 13 and then to the G20 leaders’ summit in Rome at the end of the month.

The countries aim to sign a multilateral convention in 2022, with effective implementation in 2023, he said.

The convention is already under development and will serve as a vehicle for the implementation of the newly agreed right to tax under the first pillar, as well as for standstill and phase-out provisions regarding all taxes on digital services. existing and other similar relevant unilateral measures.

This implies that India will have to withdraw its equalization tax that it imposes on foreign digital companies.

The OECD will develop model rules to integrate the second pillar into national legislation in 2022, to enter into force in 2023.

Under the first pillar, the rights to tax over $ 125 billion in profits are expected to be reallocated to market jurisdictions each year. Income gains in developing countries are expected to be greater than those in more advanced economies, in proportion to existing income.

The second pillar introduces an overall minimum corporate tax rate of 15 percent. The new minimum tax rate will apply to companies with turnover above 750 million euros and is expected to generate around $ 150 billion in additional global tax revenue each year. Other benefits will also come from stabilizing the international tax system and increasing tax certainty for taxpayers and tax administrations, the OECD said.

New Delhi has supported the OECD-Base Erosion Profit Shifting talks from the start and has been in favor of the deal, reports Economic times.

Four countries – Kenya, Nigeria, Pakistan and Sri Lanka (out of 140 members of the OECD / G20 Inclusive Framework on Base Erosion and Profit Shifting) – have not yet joined. the deal, he added.

“Today’s agreement will make our international tax agreements fairer and more efficient,” said OECD Secretary-General Mathias Cormann.

“This is a great victory for effective and balanced multilateralism. This is a far-reaching agreement that ensures that our international tax system is responsive to its needs in a digitalized and globalized world economy. We must now work quickly and diligently to ensure the effective implementation of this major reform, ”added Cormann.


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