G-20 Finance Ministers Greenlight Global Tax Reform Deal. Assessing and Monitoring Impact will be Key.

The twenty largest economies agreed on a two-pillar global tax reform plan after their July 9-10 meeting in Venice. The goal is to finalize the agreement in October 2021 and to start implementing it in 2023.

The agreement – planned for the modernization and certainty of the international tax system – targets to stop the race to the bottom corporate tax rates, includes OECD Pillar 1 and 2 in response to the OECD BEPS Action1.

Pillar 1 targets digital activity and is aimed to change the profit allocation and nexus rules giving market jurisdictions some taxing right over a piece of residual profits that multinationals earn in those jurisdictions regardless of a physical presence. Pillar 1 requires countries to withdraw some unilateral measures and refrain from imposing new ones on some relevant digital service taxes. 

Now, Pillar 2 aims to ensure that large multinationals pay a minimum 15% taxes on a country-by-country basis. 

The OECD estimates that – under Pillar 1 - taxing rights over more than $100 billion of residual profits will be reallocated annually to market jurisdictions. The global minimum rate of at least 15% under Pillar 2 would result in an extra $150 billion in tax revenues annually.

Countries including Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Sri Lanka, abstained. The reforms will require countries to implement and adopt new regulations domestically through their legislature since the plan most likely will crossover countries’ domestic tax regulations. 

DOC 2021-27363