A new global plan to ensure that large multinational corporations pay their fair share of taxes is expected to go into effect in 2023.
OECD Secretary General Mathias Cormann will inform the ANU Crawford Leadership Forum on Monday that work on the plan is well advanced and that it will hopefully be presented to the heads of state and government at the G20 summit in Rome in late October.
The former Australian Treasury Secretary said that while globalization and digitization have brought great benefits to the world, they also come with risks and disruption.
“It is very important that we ensure that large digital multinational companies – and indeed all large companies – pay their fair share of taxes in the markets in which they operate and make their profits,” Cormann said in a video message to the Forum.
He said the current outdated tax regime has enabled many large multinationals to “generate significant revenues in market areas around the world without paying any or very little corporate tax.”
These distortions needed to be addressed in a multilaterally agreed manner, and this is where the two-pillar approach – originally tackled at a G20 finance ministers’ meeting earlier this year – came into play.
The “Pillar One” part of the deal would end unilateral taxes on digital services in exchange for a new mechanism that would allow large profitable companies to tax partially based on where they sell products and services rather than tax their headquarters and their intellectual property.
The “Second Pillar” section addresses concerns that countries compete for incoming investment through low or no corporate tax rates.
She proposes the introduction of a global minimum tax rate, politically set at “at least” 15 percent, and other mechanisms to encourage global action to combat base erosion.
Cormann said the two pillars, which together could generate up to $ 250 billion in additional revenue annually, are now supported by 133 countries.
The story goes on
He said that as soon as the G20 heads of state and government nod, model laws and guidelines with “practical implementation from 2023” could be provided in 2022.
The OECD chief said work is also progressing on competition reform to respond to changes in digital markets and emerging problems such as “algorithmic collusion”.
A better understanding of data flows and data protection is also required.
“The trustful flow of data is a very important priority for the OECD,” he said.