G20 aims for global deal on MNC taxing rights in H1 2023

The G20 chair’s summary and outcome document issued after the meet said world leaders will continue to cooperate for a globally fair, sustainable and modern international tax system which is fit for the 21st century. According to the document, the leaders are committed to swift implementation of the tax package being developed by the Organisation for Economic Co-operation and Development (OECD) and G20, which comprises two pillars—reallocation of taxation rights over large enterprises and a global minimum corporate tax.

The OECD-G20 framework will finalize the pillar one of the proposed global tax treaty, including the remaining issues to ensure a multilateral convention, a treaty, can be signed in the first half of 2023, it said.

The document called for finalising negotiations under the second pillar of the package—a global minimum tax.

According to OECD, pillar one will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest multinational enterprises, including digital firms. It would reallocate some taxing rights over MNEs from their home countries to the markets where they have business activities to earn profits, regardless of whether the firms have a physical presence there. Under pillar one, taxing rights on over $125 billion of profits are expected to be reallocated to market jurisdictions every year. The second pillar seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax base. The global minimum corporate income tax will have a minimum rate of 15% and is estimated to generate $150 billion in additional global tax revenues annually, as per OECD.