The Organization for Economic Cooperation (OECD) has announced that a comprehensive reform of the international tax system has been completed between 136 countries and jurisdictions, according to which multinational companies will be subject to a minimum tax rate of 15% from 2023.
The OECD / G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) is based on the two-pillar approach of the OECD, which aims to ensure that multinational companies pay their fair share of taxes in the countries in which they operate. Of 140 OECD members / G20 Inclusive Framework on BEPS, 136 agreed to the introduction of the new tax system.
The two-pillar approach consists of nexus and profit distribution and another one of ensuring a minimum tax rate of at least 15%.
The first pillar includes multinational companies with a worldwide turnover of over 20 billion euros. In the second pillar, the new minimum tax rate applies to companies with a turnover of more than 750 million euros.
The agreement states that taken together, the two pillars could increase global tax revenues by $ 125 billion to $ 150 billion annually.
“Today’s agreement will make our international tax regulations fairer and function better,” said former Australian finance minister and current OECD general secretary Mathias Cormann.
“This is a great victory for effective and balanced multilateralism. It is a far-reaching agreement that ensures the expediency of our international tax system in a digitized and globalized world economy, this great reform. ”
The revision of the international tax system under the agreement was first announced in July. At that time 130 countries, including China, USA, Great Britain, Russia, Australia, Brazil and India, had joined. Since then, Estonia, Hungary and Ireland have also acceded to the agreement. The countries aim to sign a multilateral convention in 2022, which should be effectively implemented in 2023.
The only countries that have still acceded to the agreement are Kenya, Nigeria, Pakistan and Sri Lanka.
US Treasury Secretary Janet Yellen described the agreement as a “unique achievement in economic diplomacy”.
It comes after US President Joe Biden presented his corporate tax reform plans in April and pledged to raise the US tax rate from 21% to 28%. A week later, Yellen said the US would work with other G20 countries to set a minimum corporate tax rate.
Australian Treasurer Josh Frydenberg also welcomed the global tax treaty, saying that the “significant advances … will help multinational corporations pay their fair share of taxes in Australia and abroad”.
Australia introduced multinational anti-tax avoidance laws back in 2016. Under these laws, companies with a total annual income of more than AU $ 1 billion in Australia must file their annual financial statements with the Australian Tax Office, if they have not already done so with the Australian Securities and Investments Commission.
The introduction of the agreement follows in the footsteps of the G7 countries, which agreed in June to introduce a worldwide minimum tax rate for companies of at least 15%.
At the time, G7 finance ministers said the tax rate would be used to target “the largest and most profitable multinationals” and that they would meet G20 finance ministers and central bank governors this month to see if their deal broke out could be support from other countries.