The Organisation for Economic Cooperation and Development (OECD) is still pushing for a global tax pact on highly profitable multinationals, despite delays and hesitations from some countries. Officials from nearly 130 countries missed a mid-year deadline to finalise the terms of the international treaty that aims to reallocate taxing rights on big US digital companies. The pact, part of a two-pillar cross-border corporate tax overhaul agreed upon in 2021, seeks to replace unilateral digital services taxes with new rules on companies like Google, Amazon, and Apple.
OECD tax director Manal Corwin has emphasized the commitment among members to finalize the agreement, with a sense of urgency to get it done by the end of the year. However, there are still obstacles to overcome, with countries like India, China, and Australia resisting US demands on transfer pricing calculations. Despite these challenges, countries have begun implementing the second pillar of the 2021 global tax deal, which involves setting a 15% minimum corporate tax rate or applying a top-up levy for multinational companies that book profits in countries with lower rates.
As part of the second pillar implementation, a first wave of 19 countries have committed to signing a treaty that allows developing countries to tax outbound intra-company payments. This move aims to prevent tax evasion through international profit-shifting and ensure that companies pay their fair share of taxes. The OECD’s efforts to promote tax fairness and cooperation among countries are crucial in an increasingly globalized economy where multinational corporations play a significant role.
The global tax pact is seen as a crucial step towards creating a level playing field for all businesses and preventing tax avoidance strategies used by multinational corporations. By reallocating taxing rights and implementing minimum corporate tax rates, the agreement aims to ensure that companies contribute to the countries where they generate profits. While challenges remain, including disagreements on transfer pricing calculations, the OECD is optimistic about reaching a consensus before the end of the year.
Developing countries stand to benefit from the implementation of the second pillar of the global tax deal, as it will allow them to tax outbound intra-company payments and generate revenue from multinational corporations operating within their borders. By signing the treaty, countries demonstrate their commitment to creating a fairer tax system that addresses the challenges posed by globalisation and digitalisation. The OECD’s efforts to coordinate international tax policies and promote cooperation among countries are vital in addressing the complexities of the modern tax landscape.
