A deal has been struck between 136 countries to end tax avoidance by multinationals.
The Organisation for Economic Cooperation (OECD) has announced a major reform of the international tax system has been finalised between 136 countries and jurisdictions, which will see multinationals be subject to a minimum 15% tax rate from 2023. The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) agreement is based on the OECD’s two-pillar approach that aims to ensure multinationals pay their fair share of tax in the countries they operate in. Out of 140 members of the OECD/G20 Inclusive Framework on BEPS,136 agreed to introduce the new tax system. The two-pillar approach is one of nexus and profit allocation and another of ensuring a minimum level of taxation of at least 15%. Under pillar one, multinationals with global sales above €20 billion and profitability above 10% will be covered by the new rules, with 25% of profit above the 10% threshold to be reallocated to market jurisdictions. Meanwhile, under pillar two, the new minimum tax rate will apply to companies with revenue above €750 million. The agreement states that both pillars combined could increase global tax income revenue by $125-$150 billion annually.
