July 2, 2021
Most Inclusive Framework countries endorse high-level agreement
Most of the countries that make up the OECD's 139-member Inclusive Framework July 1 endorsed a high-level agreement that is two years in the making and addresses how the largest and most profitable multinational enterprises (MNEs) should allocate their taxable profits to customer jurisdictions under Pillar One of the OECD's project and to a global minimum tax model ensuring that MNEs pay a minimum level of tax, no lower than 15%, in all the jurisdictions in which they operate, under Pillar Two.
Under Pillar One, countries that have digital sales taxes are committing to drop those levies when the agreement is implemented. "This package will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Service Taxes and other relevant similar measures on all companies," the statement says. The agreement on Pillar One includes relatively new metrics for determining the largest MNEs subject to a formulary approach for allocating their profits among jurisdictions and scoping in MNEs based on their revenues and profits, with explicit exclusions for financial services and extractive industries.
Under Pillar Two, Inclusive Framework members are committing to enact in their domestic laws a minimum tax on the foreign source earnings of MNEs headquartered in their countries, along with a backstop rule aimed at ensuring those companies pay the minimum level of tax even if the minimum tax itself, called the income inclusion rule, is not adopted. The endorsement of Pillar Two is a big win for the Biden Administration, which has been pushing for a global agreement in part to buttress support in Congress for its proposals to dramatically toughen the global intangibles low-taxed income (GILTI) rules.
The Inclusive Framework statement declares that "final decisions on design elements" of both Pillars should be agreed upon by October. The statement released by the Inclusive Framework endorses an implementation plan for both Pillars. Under Pillar One, "The multilateral instrument through which Amount A is implemented will be developed and opened for signature in 2022, with Amount A coming into effect in 2023." Under Pillar Two, the implementation plan states that Inclusive Framework members should bring the Pillar Two rules into law in 2022, with application starting in 2023. The statement suggests a multilateral instrument could be used to coordinate implementation of Pillar Two.
Treasury Secretary Janet Yellen released a statement saying, in part, "Today's agreement by 130 countries representing more than 90 of global GDP is a clear sign: the race to the bottom is one step closer to coming to an end. In its place, America will enter a competition that we can win; one judged on the skill of our workers and the strength of our infrastructure. We have a chance now to build a global and domestic tax system that lets American workers and businesses compete and win in the world economy."
Ireland and Hungary are said to be among the dissenting nations.
The statement is available here.
The statement from Sec. Yellen is available here.