On Friday 8 October, the OECD announced a landmark package of international tax rules designed to address tax challenges arising from the digitalisation of the global economy.
The OECD published a statement setting out the terms of this deal agreed by 136 members of the OECD International Framework (IF). The list of signatories includes all G20 members and EU member states and represents more than 90% of global GDP.
The OECD statement provides a high-level summary of the rules. Under Pillar I, multinational enterprises with a global turnover of over EUR20 billion will be required to allocate income and profit, and pay tax, in more of the jurisdictions in which they operate. As part of this comes a commitment to repeal unilateral measures to tax the turnover of these types of business (including the UK digital services tax). Under Pillar II, IF members can use domestic law to ensure multinational enterprises with turnover of over EUR750 million operating in their jurisdiction pay a minimum global corporate tax rate of 15%. Both Pillars are subject to exclusions and safe harbours, the details of which are yet to be agreed.
It also sets up an implementation plan with:
- model rules to be published by the end of November 2021;
- a multilateral instrument to implement Pillar II and a multilateral convention to implement Pillar I by mid-2022; and
- domestic implementation of Pillars I and II by member states in 2023.
What does this mean for business?
It is a remarkable sign of progress that 136 members of the IF have managed to reach agreement on key elements of the package and set out an implementation plan to make this concept a reality. Both the rules and the timeline are helpful for business to understand and prepare for the changes.
However, we are not at the finish line yet and much work remains to be done to flesh out the detail of the rules, and to implement them into domestic law. Business needs to see the draft detailed rules expected later this year to properly understand the impact of this agreement. These are expected to be published in late November 2021.
The G20 finance ministers are meeting on 13 October in Washington DC to discuss the proposals, which will then go to the G20 Leaders’ Summit in Rome on 30-31 October. As all the G20 members have signed the statement, this step is expected to be a formality.
The CBI continues to engage with the UK Treasury and HMRC to ensure that these rules create a new system which supports businesses by being as simple, sustainable and easy to comply with as possible.
The next opportunity to engage with Treasury will be a member roundtable on 21 October 2021. If members are interested in joining please contact Alice Jeffries for details.