MNEs will be subject to a minimum 15% tax rate from 2023; two-pillar solution agreed by 136 countries

News, dated 08-10-2021

Major international tax reform was finalized on 08-10-2021 at the OECD. The reform will ensure that Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023.

This landmark deal has been agreed upon by 136 countries and jurisdictions representing more than 90% of global GDP. It will also reallocate more than USD 125 billion of profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits. Four countries – Kenya, Nigeria, Pakistan, and Sri Lanka have not yet joined the agreement.

On 01-07-2021, the majority of the members OECD/G20 Inclusive Framework on BEPS (including India) adopted a high-level statement containing an outline of a consensus solution to address the tax challenges arising from the digitalization of the economy. India favored a consensus solution to tax which is simple to implement and simple to comply with.

The proposed solution consists of two components – Pillar One, which is about reallocation of an additional share of profit to the market jurisdictions, and Pillar Two consisting of minimum tax and subject to tax rules.

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. Further benefits will also arise from the stabilization of the international tax system and the increased tax certainty for taxpayers and tax administrations.

The two-pillar solution will be delivered to the G20 Finance Ministers meeting in Washington D.C. on 13 October, then to the G20 Leaders Summit in Rome at the end of the month.

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