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Global governments must embrace the reform to ensure multinational corporations pay taxes where they earn their revenue, says OECD.
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International tax reform could net annual gains of $220bn
20 January 2023
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Revenue gains from the reform of the international tax system will be significantly higher than previously anticipated and it could raise approximately $US220 billion, the Organisation for Economic Co-operation and Development (OECD) says.
In a presentation at Davos, the OECD said its proposed two-pillar system to reform the international tax system would provide increased revenue gains equal to 9 per cent of global corporate tax revenues.
The predicted figure was significantly higher than the OECD’s previous estimate of $US150 billion in additional annual tax revenues.
OECD secretary-general and former Australian finance minister Mathias Cormann said while the reforms had advanced there had to be an extensive global take up for it to work as designed.
“The international community has made significant progress towards the implementation of these reforms, which are designed to make our international tax arrangements fairer and work better in a digitised, globalised world economy,” said Mr Cormann.
“This new economic impact analysis again underlines the importance of swift, efficient and widespread implementation of these reforms to ensure these significant potential revenue gains can be realised.”
“Widespread implementation will also help stabilise the international tax system, enhance tax certainty and avert the proliferation of unilateral digital services taxes and associated tax and trade disputes, which would be bad for the global economy and economies around the world.”
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The two-pillar system to address the tax challenges which arose from the digitalisation and globalisation of the economy would lead to greater taxing rights for market jurisdictions and a floor placed on tax competition said the OECD.
Pillar Two would create the floor, a global 15 per cent minimum effective corporate tax income rate which was expected to attract global revenue gains of approximately $US220 billion, a significant increase on the annual tax reviews previously attributed to the minimum tax component of this pillar.
Meanwhile, Pillar One of the system was designed to create a fairer distribution of taxing rights among jurisdictions so the largest and most profitable multinationals would be expected to allocate taxing rights on about $US200 billion in profits to market jurisdictions annually.
The OECD expects this to lead to annual global tax revenue gains of $US13–36 billion, according to 2021 data.
The analysis found that low and middle-income countries were expected to gain the most as a share of existing corporate income tax revenues.
While Australia along with multiple other countries confirmed they would move forward with the OECD’s two-pillar global tax reform plan, with the organisation aiming to finish negotiations on its Pillar One details so it could be turned into a treaty for the countries to sign.
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