Historic global tax deal taking final shape

After years of difficult negotiations, an OECD-brokered deal to update international corporate tax rules has the support of all OECD countries and is closer to becoming reality.

A group of 136 countries and jurisdictions took another step forward 8 October toward a historic global corporate tax accord after years of difficult negotiations and under pressure to act to forestall a proliferation of unilateral national digital services taxes.

The two-pillar agreement brokered by the Organisation for Economic Co-operation and Development (OECD) covers large multinational enterprises (MNEs) only. Pillar one applies to about 100 of the biggest and most profitable MNEs, while pillar two extends somewhat more broadly to those with over €750 million ($868 million) of annual revenue. Smaller multinationals are presently outside the scope of the proposed corporate tax agreement.

Under the tax accord, a multilateral convention would remove all existing digital services taxes and similar unilateral measures that nations have implemented.

At the 8 October meeting, the OECD/G20 "inclusive framework", or IF, confirmed that 136 nations and jurisdictions had joined a statement addressing previously unresolved matters, including a detailed implementation plan for the deal to modernize international corporate taxation. Although a framework had been agreed at a July meeting, certain key parameters had been left for decision by October. Some important technical and implementation issues yet remain to be resolved.

The next step forward in finalising the agreement to tax large MNEs is for the IF's two-pillar solution to be considered by the G20 finance ministers at their Washington, D.C., meeting on 13 October, then at the G20 leaders' summit in Rome at the end of October.

"Today's agreement will make our international tax arrangements fairer and work better," said OECD Secretary-General Mathias Cormann. "It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalised and globalised world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform," Cormann said in an OECD press release.

What the new rules would be

The new corporate taxes on large MNEs are designed to address certain issues arising from digitalisation and globalisation, such as the fact that social media sites, search engines, digital streaming services, and other companies offering digital products often pay little tax in a country even though many customers or users are located there. Pillar one of the IF's proposed tax deal seeks to ensure a fairer distribution of profits from the largest and most profitable MNEs — those with global sales above €20 billion ($23 billion) and profitability above 10% — by granting more taxing rights to market jurisdictions (eg, the place where the user is located). Specifically, 25% of profit above the 10% threshold would be reallocated to market jurisdictions.

Pillar one of the agreement also contains a commitment to reduce the scope threshold in seven years, provided the system is operating as intended.

Pillar two of the OECD-brokered accord has a different purpose: To reduce profit shifting and tax competition among jurisdictions. The mechanism for doing so is the introduction of a global minimum corporate tax rate set at 15%. This minimum tax would apply to companies with revenue above €750 million ($868 million).

There would be certain exclusions under the agreement, such as for mining companies, shipping, regulated financial services, and pension funds.

When the taxes would go into effect

The new taxes on large MNEs are expected to take effect under both pillars in 2023, the OECD press release said. To implement the taxing right under pillar one, countries are aiming to sign a multilateral convention during 2022, with effective implementation in 2023; the convention is already under development. With respect to pillar two, the OECD will develop model rules for bringing it into domestic legislation during 2022, to be effective in 2023, the OECD said.

The agreement announced 8 October, which includes all G20 and OECD countries, is a notable diplomatic achievement. Last year, the prospects for an international deal to reform corporate taxation had seemed remote, especially because of opposition from then-US Treasury Secretary Steven Mnuchin, who objected to pillar one based on concerns that US-based tech giants would be unfairly targeted by the proposed corporate tax changes. The appointment of Janet Yellen in early 2021 as the new US Treasury secretary led to new negotiations and helped spur political agreement on key aspects of taxing large MNEs. The next steps are for the IF's proposed two-pillar solution to be presented to the G20 finance ministers' meeting on 13 October and then to the G20 leaders' summit later this month.

For more information about the OECD-brokered two-pillar agreement, see the information posted on

Dave Strausfeld, J.D., is an FM magazine senior editor. To comment on this article or suggest an idea for another article, contact him at