With US support for the OECD reforms hanging in the balance, some countries may be tempted to revive plans for their own digital taxes
OECD pushes for agreement on taxing multinationals: According to a report to G20 finance ministers and central bank governors, the OECD is on track to deliver by mid-2023 reforms to ensure that multinational companies pay “a fair share of tax” wherever they operate. These reforms reflect Pillar One of the landmark agreement to change international tax arrangements, which was reached by over 135 countries in October 2021. Since that time, the OECD has been focused on the practical implementation of a new right that will allow countries to tax profits from some of the largest multinational enterprises. The organisation considers that revising tax systems will make them fairer and work better against the backdrop of an increasingly digitised, globalised world economy, stating that it would take “as much time as necessary to get the rules right”.
International deal does not yet have US support: Despite reporting progress, the OECD’s update confirms that implementation of the new Pillar One rules will be delayed until 2024 at the earliest, missing the original 31 December 2023 date. It has set a deadline of the middle of next year to finalise a new multilateral convention that would chart a course towards evolving tax treaties and addressing profit shifting, a practice that costs governments an estimated $100-240bn in tax revenue annually. However, agreement on Pillar One faces significant uncertainty in the US, where it does not enjoy universal support from Democrats and has opponents in the Republican party. A failure of the US to ratify the global deal (which the Treasury has said will have a negligible net impact) could reignite a transatlantic trade dispute and encourage some countries to restart conversations about national digital levies.
Progress towards a minimum global tax rate: As the OECD seeks to negotiate its way through several Pillar One barriers, it appears more confident about the other half of its global tax revolution. Pillar Two of the plan would introduce a 15% global minimum corporate tax rate. The OECD states that technical work in this area is “largely complete” and an implementation framework is to be released later this year to facilitate implementation and coordination between tax administrations and taxpayers. All G7 and some G20 countries, the EU and many other economies have now scheduled plans to introduce the global minimum tax rules. Though Hungary recently withdrew its support for the initiative, the OECD believes this opposition can be overcome. Spearheaded by France, some EU member states are exploring workaround solutions to ensure the 15% levy can be enacted without the usual requirement for unanimous approval.
