Following on from pledges made at this year’s G7 summit in Cornwall, several of the word’s countries and jurisdictions have joined a new two-pillar plan to reform international tax rules to ensure multinational companies pay a fair share of tax wherever they operate across the globe.
The 130 countries, representing more than 90% of the worlds GDP, have joined the new framework which will look to update key elements of the century-old international tax system, which is deemed to no longer be fit for purpose in the digitalised 21st Century economy. The two-pillar approach will provide much-needed support to governments needing to raise necessary budgets, balance sheets and implement additional measures needed to help optimise recovery in a post-covid world.
Pillar one will ensure a fairer distribution of profits and taxing rights for the world’s largest Multi-National Entities (MNEs) by re-allocating proportional taxing rights from home countries to markets where MNEs have business activities and earn profits, regardless of whether a business has a physical presence in that country.
Pillar two is designed to put a floor on the competition over corporate income tax by introducing a global minimum corporate tax rate that countries can use to protect their tax bases.
Those countries taking part in the negotiations have set ambitious timelines for the conclusion of the discussions, including an October 2021 deadline for finalising the remaining technical work on the two-pillar approach. Effective implementation of the full plan is expected to take place in 2023.
For more information on the new framework, click here
