OECD Takes Further Step Towards Fairer Global Taxation

The international community took another step towards ensuring fairer and better international tax arrangements, in particular for developing countries, the OECD has announced.

The organisation said nine jurisdictions have now signed a multilateral treaty that will allow early adopters to swiftly implement the new Pillar Two Subject to Tax Rule, which aim to ensure global minimum taxation rates apply.

The Pillar Two Subject to Tax Rule (STTR) was agreed on a consensus basis by members of the OECD/G20 Inclusive Framework on BEPS (base erosion and profit shifting).

The Subject to Tax Rule ensures a minimum level of taxation on relevant cross-border payments and is designed to prevent circumstances where income is either taxed at very low rates or not taxed at all due to differences in tax regimes between countries.

Members of the Inclusive Framework that apply nominal corporate income tax rates below 9% to income covered by the STTR have committed to incorporate the STTR into bilateral tax agreements with members of the Inclusive Framework that are developing countries when requested to do so.

The STTR forms part of a package of rules aimed at ensuring global minimum taxation of multinational businesses. More than 70 developing country members of the Inclusive Framework are eligible to request inclusion of the STTR in their agreements with other members of the Inclusive Framework in accordance with the commitment on the STTR.

Developing countries are often the source of significant outbound payments that can be subject to low or no taxation. The STTR provides developing countries with a more straightforward tool to help ensure they receive their fair share of tax revenue by taxing any such payments when they are undertaxed in the recipient’s jurisdiction, helping to protect their tax base.

“Currently, developing countries lose substantial revenues to base erosion and profit shifting by multinational enterprises. They are more vulnerable to these practices than developed jurisdictions,” said OECD Secretary-General Mathias Cormann.

“The imminent entry into force of the Multilateral Instrument will make a real tangible difference, by enabling developing countries to request the automatic inclusion of the Subject to Tax Rule in bilateral tax treaties with developed country Inclusive Framework members, ensuring that everyone benefits from the consensus-based solutions being developed to make the global tax system fairer and work better in an increasingly globalised and digitalised world economy.”

He said the signing of the multi-lateral treaty was “a further significant milestone in the implementation of the Two-Pillar Solution to stabilise the global tax landscape, to reduce the incentive for multinationals to profit shift, curb harmful tax competition, remove inappropriate pressure on countries to offer low or no corporate tax arrangements in return for investment and help to generate important additional revenues for governments around the world”.

Working with over 100 countries, the OECD is a global policy forum that promotes policies to improve the economic and social well-being of people around the world.

“The imminent entry into force of the Multilateral Instrument will make a real tangible difference, by enabling developing countries to request the automatic inclusion of the Subject to Tax Rule in bilateral tax treaties with developed country Inclusive Framework members,"

Mathias Cormann, Secretary-General, OECD