The international tax reform journey is the story of how and why countries collaborate on tax matters. The right to tax is fundamental to national sovereignty and is jealously guarded by national governments. Countries choose to collaborate on international tax rules and standards when collective action is necessary to secure or facilitate domestic policy objectives; or alternately, when the absence of collective action or coordination frustrates domestic objectives.
Increasing globalisation and digitalisation have multiplied opportunities and avenues for cross-border activities, putting pressure on the international tax architecture and creating new demands for collaboration. Further, increasing awareness of development financing needs has led to a collective interest among jurisdictions in coordinating to enhance the capacity of developing economies to mobilise resources to support growth and development.
The international tax reform journey has already come a long way. Governments have collaborated on international taxation for over 100 years, developing an agreed set of international tax rules that helped promote stability and growth by removing barriers to cross-border investment, while protecting domestic tax bases. However, during the global financial crisis, it became clear that this international tax architecture, developed in the “brick and mortar” economy a century prior, was no longer suited to the increasingly digitalised and globalised world. In parallel, the need became evident to ensure that the voices of countries and jurisdictions across the world shaped the development and implementation of the changes to this architecture.
Tax transparency has led the way in responding to these imperatives and remains a stalwart of multilateral efforts to coordinate on tax. In 2009, the G20 declared the end of bank secrecy and established the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum). Today counting 170 jurisdictions as members, the Global Forum has achieved great success in the fight against offshore tax evasion via the implementation of robust transparency standards – including exchange of information on request and more recently automatic exchange of information – and technical assistance. This has generated USD 126 billion in additional revenues, of which nearly USD 41 billion is in developing countries, and has sharply reduced the proportion of offshore wealth that is untaxed.
The interconnectedness of our economies was also a driver of the Base Erosion and Profit Shifting (BEPS) project, which aimed to counter aggressive tax planning by MNEs. Since 2016, the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework), now counting 145 members, has implemented the BEPS minimum standards and established best practices, materially reducing tax avoidance and treaty abuses.
OECD tax policy and statistical analysis has also expanded to support countries to navigate domestic policymaking and international coordination. The Global Revenue Statistics initiative, produced in partnership with international and regional partners, has grown to cover more than 120 countries across Africa, Asia-Pacific, Europe, Latin America and the Caribbean, and North America, and our Corporate Tax Statistics, including anonymised and aggregated CbCR data, cover more than 160 countries. Our landmark work on effective carbon rates and taxing energy use, as well as our annual Tax Policy Reforms publication, have both grown to cover more than 70 countries.
The present international tax reform journey builds on these achievements with the goal of further modernising the international tax system and making it fairer. A defining development of the OECD tax work over the last decade is the prioritisation of inclusivity. The Global Forum has grown since 2009 to 170 jurisdictions, a majority of which are developing countries. The Inclusive Framework on BEPS, launched in 2016, has grown from 82 members to 145 members - with more than 70 per cent of the membership now consisting of non-OECD and non-G20 members, and half of the governance board, including the co-Chair and Vice-Chairs, being from developing economies.
In tax transparency, the Global Forum continues to expand implementation of automatic exchange of information, and to further the gains made in developing countries through intensive technical support. To address the risks that rapid adoption of crypto-assets pose to transparency, in 2022, the OECD delivered a new Crypto-Asset Reporting Framework (CARF) in response to a G20 request. The Global Forum is taking forward implementation of the CARF, and in early November 2023, 48 countries and jurisdictions announced their support for the framework and intention to implement.
Separately, the work of the Inclusive Framework to implement the BEPS Actions culminated in the landmark international tax agreement of October 2021 on the Two-Pillar Solution to Address the Tax Challenges of the Digitalised Economy (Two-Pillar Solution). The first pillar brings the tax system into the 21st century by reallocating taxing rights on a portion of the profits of the largest and most profitable multinational companies, regardless of physical presence, removing the potential for a proliferation of digital services taxes and harmful trade disputes that might follow. The second pillar prevents the erosion of domestic tax bases through a new global minimum effective corporate tax rate of 15 per cent.
Today, the Inclusive Framework’s work to finalise and implement the Two-Pillar Solution continues at pace. The global minimum tax under Pillar Two is already a reality, with around 55 countries already taking steps towards implementation and we estimate approximately 90 per cent of in-scope MNEs will be subject to the tax by 2025. In July 2023, the Inclusive Framework released a statement, joined by 140 members, which detailed the remaining steps to finalise the other elements of the Two-Pillar Solution. Since then, delegates have been working intensively to finalise these elements, including releasing the text of the multilateral convention to implement the coordinated reallocation of taxing rights under Pillar One.
Delegates also highlighted the need to modernise VAT systems to ensure cross-border trades in goods and services were treated consistently, reducing the potential for VAT fraud and putting international provision of goods and services on the same footing as domestic sources. Built in consultation with more than 100 countries via the Global Forum on VAT, the International VAT/GST Guidelines address these goals. Currently used by more than 90 countries, these Guidelines have led to impressive domestic revenue gains. For example, Thailand collected nearly USD 203 million in the first 13 months of their operation; South Africa has collected nearly USD 1 billion since 2014; and Chile has raised USD 775 million in the first three years. To facilitate implementation, the OECD has worked in partnership with the World Bank and regional institutions to develop regional toolkits and provide technical assistance to 26 developing economies.
Other important workstreams to respond to the changing world include work on the digital transformation of tax administrations, to help administrations use technology to build-in compliance, drive down tax gaps, and reduce compliance burdens, as well as work to improve tax certainty for taxpayers and tax administrations alike. The Task Force on Tax Crimes and Other Crimes counters tax crimes and illicit financial flows via the Oslo Dialogue – a strategy launched in 2011 to promote ‘whole of government’ approaches to fighting tax crime and other financial crimes through standard setting, sharing of best practices, and capacity building – and the 10 Global Principles for Fighting Tax Crime, as well as the establishment of the OECD International Academy for Tax and Financial Crime Investigation in Rome, Nairobi, Buenos Aires, Tokyo and Delhi.
Finally, technical support and capacity building is also a core part of today’s international tax cooperation. The joint OECD-UNDP Tax Inspectors Without Borders programme provides hands-on assistance to developing countries in managing tax audits and criminal investigations. To date, the programme has operated across 59 jurisdictions, with a total of USD 2.07 billion in additional tax collected. The OECD has provided in-depth bilateral support to over 50 countries as well as specific programmes on transfer pricing, the BEPS Actions and the impact of Pillar Two on Tax Incentives. In 2022 alone, 22,000 officials participated in multilateral training on key areas of international tax cooperation of interest to developing countries. We also collaborate with our partners in the Platform for Collaboration on Tax – the United Nations, IMF and World Bank – in this area.
Where to from here? The future tax reform journey will build on the successes of the past while seeking to learn its lessons. Within the OECD-hosted bodies taking this forward, increasing inclusivity will remain a top priority. To ensure inclusivity is also effective, we will seek not only to increase the number of countries and jurisdictions participating, but also to ensure they can effectively use their voices via increased technical support and a continued focus on improving inclusivity in the governance of the OECD-hosted processes.
Underpinning all our work lies our strong commitment to capacity building to ensure all countries can benefit from the new tax rules. The OECD is preparing a comprehensive action plan to support implementation of the Two-Pillar Solution, which will include additional assistance for developing countries in the form of bilateral and multilateral training, peer reviews and stakeholder dialogues. As part of this, the joint OECD-UNDP Tax Inspectors Without Borders initiative is gearing up to support jurisdictions in the practical implementation of the global minimum tax rules, collaborating with our regional partners.
Finally, as a member-led organisation, the OECD-hosted processes will include all countries in setting the future agenda via a bottom-up process that responds to country priorities. A first step was made at the most recent meeting of the Inclusive Framework in July 2023, which engaged with stakeholders to identify priorities for future tax cooperation. Themes that emerged include tax responses to the challenges posed by higher social inequalities and the role of taxes in financing development. Delegates also discussed the impact of mobile workers on personal and corporate tax systems, the simplification of corporate tax systems, and future frontiers in tax transparency, including in relation to real property and high-wealth individuals.
We look forward to building on the strong record of collaboration and to engaging with countries, international and regional organisations, the business community, civil society and other stakeholders to shape these priorities and the future international tax reform journey, with a particular focus on supporting domestic resource mobilisation to further the sustainable development goals.
Manal Corwin is the Director of the Centre for Tax Policy and Administration at the OECD. She took up her duties as on 3 April 2023. Prior to her role at the OECD, Manal was principal-in-charge of KPMG’s Washington National Tax Practice and America’s Regional Tax Policy Leader; a member of the KPMG Board of Directors and Lead Director. . Earlier roles at KPMG included national service line leader for International Tax and leader of KPMG's Global BEPS Network.