INTERNATIONAL TAX: G20 aims for global deal on MNC taxing rights in 2023 first half.

As published on livemint.com, Sunday 26 February, 2023.

World leaders are aiming to sign a multilateral legal agreement on fairer re-allocation of taxation rights over the largest multilateral enterprises including digital economy firms in the first half of 2023, according to the understanding reached by G20 finance ministers and central bank governors at the end of their two day meeting in Bengaluru on Saturday.

The G20 Chair’s summary and outcome document issued after the meeting said that world leaders will continue their cooperation for a globally fair, sustainable and modern international tax system fit for purpose for the 21st century.

The document said the leaders remained 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--re-allocation of taxation rights over large enterprises and a global minimum corporate tax. The document said the OECD/G20 framework to finalise pillar one of the proposed global tax treaty, including the remaining issues so that the multilateral convention, a treaty, can be signed in the first half of 2023. The document also 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 (MNEs), including digital companies. It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms there have a physical presence there, as per information available from the OECD. Under pillar one, taxing rights on more than $125 billion of profit are expected to be reallocated to market jurisdictions each 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 bases. As per information available from OECD, the global minimum corporate income tax under pillar two - with a minimum rate of 15% - is estimated to generate around $150 billion in additional global tax revenues annually.

Carey Olsen adds senior lawyer…