136 out of the 140 OECD countries approved a global agreement to prevent tax avoidance by shifting of corporate profits to low-tax countries on 8 October 2021.
The agreement is designed to ensure that large multinational corporations pay a fair share of tax wherever they operate and generate profits. The two-pillar solution will be delivered.
Pillar One concerns the taxation of the largest multinationals with a profitability above 10% and annual global sales above EUR 20 billion (the threshold can drop to EUR 10 billion in 2030). These companies will have to tax 25% of their profit above the 10% threshold in the jurisdictions where the sales were achieved, i.e. in the countries where the goods were sold or the services provided.
Pillar Two introduces a global minimum corporate tax of 15%. The minimum tax rate will apply to multinational enterprises with revenues above EUR 750 million. If multinational enterprises tax their profit in jurisdictions with an effective tax rate lower than 15%, they will have to pay additional tax to compensate the difference in the jurisdiction of the parent company.
The agreement is proposed to become effective in 2023 and has yet to be translated into the legal framework. Although the timeframe for implementing the agreement in the national legislation is too short, all the countries concerned are highly motivated to introduce these rules.
