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Significant progress has been made in the OECD’s efforts to reach international consensus on the BEPS 2.0 proposals. By and large, the proposals aim to address taxation challenges in the modern digital economy. The 139-country meeting of the OECD Inclusive Framework ended on July 1, 2021 with 130 countries and legal systems, which together represent over 90% of global GDP, and approved the two-pillar approach to international tax reform. Among those who agree were the United Kingdom, United States, Cayman Islands, Jersey and Guernsey. Only nine members of the Inclusive Framework have yet to approve the proposals, including some EU Member States with low taxes, namely Ireland, Estonia and Hungary.
The OECD framework for international tax reform aims to ensure that large multinational corporations (“MNEs”) pay taxes where they operate. It is also intended to increase security and stabilize the international tax landscape. The framework consists of two proposals, known as Pillar One and Pillar Two, which have been the subject of lengthy international negotiations in recent years.
Pillar One is aimed at the largest MNEs worldwide. It is intended to reallocate profits and related taxation rights from certain jurisdictions in which the MNEs have a physical substance to other countries in which they have a market presence, do business or make profits, regardless of whether they have a physical presence or not. This will have an impact on large tech companies.
The main element of the second pillar is the Global Base Erosion Action (“GLOBE”), which aims to ensure that multinational companies exceeding a certain consolidated turnover threshold are subject to an effective minimum tax rate in each country in which they operate. At the recent Inclusive Framework it was suggested that this minimum rate would be at least 15%. The OECD has stated that the second pillar will seek to eliminate competition for corporate tax and allow countries to protect their tax bases.
The remaining elements of the framework, including the implementation plan, will be completed in October 2021.
© 2021 Proskauer Rose LLP. National Law Review, Volume XI, Number 186
