The global minimum corporate tax agreement

The global minimum corporate tax agreement

The global minimum corporate tax agreement marks a historic turning point, leading to the transformation of international taxation.

July 12, 2023 marks a historic milestone as 138 countries and jurisdictions have agreed to implement a ground-breaking global tax agreement, as officially announced by the OECD.

This agreement marks a significant step in international tax reform, particularly in addressing the tax challenges arising from the digitization of the global economy.

The agreement includes two essential pillars

Pillar I aims to ensure that multinational enterprises (MNEs) pay fair taxes in the jurisdictions in which they operate, whether or not they are also domiciled.

Pillar II, on the other hand, aims to establish and enforce a global minimum corporate tax of 15% to counter tax avoidance and profit shifting practices. By setting a minimum tax cap, MNEs will be prevented from “artificially shifting profits” to jurisdictions with lower tax rates, thereby “protecting the integrity” of the tax system.

Comprehensive and coordinated effort

The agreement reflects a comprehensive and coordinated effort to rebuild the global tax framework, aiming to “reconcile competing interests” and promote fairness. It aims to address the challenges generated by digitization, recognizing the need to adapt tax rules to the evolving economic environment.

In addition, participating countries have agreed to end the imposition of unilateral taxes on digital services, recognizing the need for a “coordinated and comprehensive approach”. This commitment underlines the importance of a unified response to the taxation of the digital economy.

Stages of further work

The declaration on the global tax agreement will be presented to the G20 group of finance ministers and central bank governors at their meeting in July 2023.

Technical work will continue with the aim of initiating the signing of the Multilateral Convention at the end of 2023, and implementation is foreseen by 2025. Further work on “Amount B of Pillar I” will be completed by the end of the year, taking into account the reduced capacity of some jurisdictions.

The “Subject to Taxation Rule” (STTR), which determines the criteria for taxable income in certain jurisdictions, will have its documentation published in the coming months, and the Multilateral Instrument to Implement the STTR will be available for signature from October 2023. provide a standardized framework for countries to adopt and incorporate STTR into their national tax systems.