Significant progress has been made in the efforts of the OECD to reach international consensus on the BEPS 2.0 proposals. Broadly, the proposals are aimed at addressing challenges relating to taxation of the modern digital economy. The 139 country OECD Inclusive Framework meeting concluded on 1 July 2021, with 130 countries and jurisdictions, representing in aggregate over 90% of global GDP, agreeing to the two pillar approach to international tax reform. Among those to agree were the United Kingdom, the United States, the Cayman Islands, Jersey and Guernsey. Only 9 members of the Inclusive Framework have yet to agree to the proposals, including some low tax EU member states, namely Ireland, Estonia and Hungary.
The OECD framework for international tax reform aims to ensure that large multinational enterprises (“MNEs”) pay tax where they operate. It is also intended to increase certainty and add stability to the international tax landscape. The framework is comprised of two proposals, known as Pillar One and Pillar Two, which have been subject to protracted international negotiations over the last number of years.
Pillar One is aimed at the largest global MNEs. It is intended re-allocate profits and related taxing rights from certain jurisdictions where the MNEs have physical substance to other countries where they have a market presence, business activities or earn profits, regardless of whether or not they have a physical presence. This will have implications for large technology companies.
The main element of Pillar Two is the global anti-base-erosion (“GLOBE”) measure, designed to ensure that MNEs which surpass a certain consolidated revenue threshold are subject to a minimum effective tax rate in each county in which they operate. It was proposed at the recent Inclusive Framework meeting this minimum rate would be at least 15%. The OECD have stated that Pillar Two will seek to put a floor on the competition over corporation tax and allow countries to protect their tax bases.
The remaining elements of the framework, including the implementation plan, will be finalised in October 2021.