Global tax reform plans, negotiated under the lead of the Organisation for Economic Cooperation and Development, are now to enter into force in 2024, a year later than originally planned.
The OECD said that the “ambitious timelines” set for implementation of the new global tax rules in October 2021 reflected the strong political desire to address the tax challenges arising from the digitalisation of the economy.
A total of 137 members of the OECD/G20 Inclusive Framework on BEPS, including the Cayman Islands, have committed to the two-pillar tax plans that will reallocate taxing rights for a portion of the profits of the world’s largest tech companies and set a minimum global corporate tax rate of 15% for multinationals.
But, the OECD said, the Inclusive Framework now recognises “that it is important to balance the political interest in swift implementation with the need to get the design of the new rules right, especially since they are intended to last for decades”.
As part of that process, the Inclusive Framework considers it particularly important to consult businesses, NGOs, parliaments, and other relevant stakeholders and use their feedback to refine and finalise the rules, the organisation added.
The OECD presented a progress report on the reform plans to the G20 meeting of finance ministers in Indonesia earlier this month.
This included a draft of the technical model rules to implement a new taxing right that will allow market jurisdictions to tax profits from some of the largest multinational enterprises, the so-called Pillar One.
This report will now be subject to public consultation through to mid-August.
The Inclusive Framework will then review stakeholder input and seek to agree final rules at its meeting in October 2022.
Work will then continue on the detailed provisions of the new multilateral convention so that it can be signed by mid-2023 and enter into force in 2024, once “a critical mass” of countries have ratified it.
In its progress report, the OECD said, “The novelty of the concepts relating to this new taxing right and its integration within the existing international tax architecture merit further deliberation with respect to a few of the building blocks”.
The new timeline would, therefore, allow for greater engagement with citizens, business and parliamentary bodies, which will ultimately have to ratify the agreement.
“We have made good progress towards implementation of a new taxing right under Pillar One of our international tax agreement. These are complex and very technical negotiations in relation to some new concepts that fundamentally reform international tax arrangements, to make them fairer and work better in an increasingly digitalised, globalised world economy,” OECD Secretary-General Mathias Cormann said in a press release.
“We will keep working as quickly as possible to get this work finalised, but we will also take as much time as necessary to get the rules right. These rules will shape our international tax arrangements for decades to come. It is important to get them right,” he said.
Technical work under Pillar Two, which introduces a 15% global minimum corporate tax rate, is largely complete, with a framework to be released later this year to facilitate implementation and co-ordination between tax administrations and taxpayers.
The adoption of the new rules has hit several roadblocks both in Europe and the United States this year.
In the European Union, Hungary is vetoing the introduction of a 15% minimum corporation tax, arguing that it would make its companies less competitive, particularly in light of war in Ukraine and high inflation worsening the economic situation.
In the United States, the proposed Pillar One rules, which would introduce tax on a portion of the profits of the largest tech companies in countries where they do significant business, but may not have a physical presence, is facing strong opposition from the Republican Party. This has raised question marks over the implementation of the reform plans by Congress.
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