Digital tax and the global minimum tax rate

Digital tax and global minimum tax rate

Digital tax and the global minimum tax rate

On 8 October 2021, major reforms of the international tax system in relation to Pillar 1 – Tax challenges arising from the digitalization of the economy) and Pillar 2 – Global minimum tax rates have been brought in by the Organisation for Economic Co-operation and Development (OECD).

OECD Secretary-General Mathias Cormann termed this as a major victory for effective and balanced multilateralism.

Pillar One seeks to ensure a fairer distribution of profits among countries. It will re-allocate profits from their home countries to the markets where they have business activities, regardless of whether firms have a physical presence there.

Pillar Two introduces a global minimum corporate tax rate set at 15%. The new minimum tax rate will apply to companies with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues annually.

Impozitul digital și rata minimă de impozitare

The above framework, backed by 136 countries, including Romania, seeks to ensure a fair share of taxes for countries where multinationals and global digital companies such as Netflix, Google, Facebook earn revenues from.

This tax reform seeks to reallocate more than $125 billion of profits from around 100 of the world’s largest and most profitable multinational companies to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits.

The two-pillar solution will be delivered to the G20 Finance Ministers meeting in Washington DC on 13 October, then to the G20 Leaders Summit in Rome at the end of the month. Countries are aiming to sign a multilateral convention during 2022, with effective implementation in 2023.