138 tax jurisdictions agree on global tax reform, defer digital tax measures

138 tax jurisdictions have agreed an ‘Outcome Statement” on ways to move forward with historic, major reform of the international tax system.

The 138 tax jurisdictions are members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and representing over 90 percent of global GDP.

In a significant development since October 2021, these tax jurisdictions have agreed to refrain from imposing newly enacted digital services taxes or relevant similar measures on any company before December 31, 2024, or the entry into force of the Multilateral Convention (MLC) if earlier, provided the signature of the MLC has made sufficient progress by the end of the year.

The commitment is made in recognition of the progress made to date and the need to prevent disruption or delay of the ratification of the MLC.

“The Two-Pillar Solution will provide stability for the international tax system, making it fairer and work better in an increasingly digitalised and globalised world economy,” OECD Secretary-General Mathias Cormann said.

“We have all been working intensively on the technical details and on the implementation arrangements that are necessary to make the Two-Pillar Solution a reality. The agreement reached yesterday proves that despite the challenges and compromises along the way, multilateral dialogue works and can deliver results to tackle shared challenges requiring shared solutions. This work is critical to governments and our economies – ultimately, to be able to raise the necessary revenue to fund the essential public goods and services for their citizens.”

The Outcome Statement agreed at the 15th Meeting of the Inclusive Framework follows 20 months of intense technical negotiations by delegates to continue the work to implement the Two Pillar Solution. It reflects collaboration and compromise among all jurisdictions – small and large, developing and developed – during negotiations by Inclusive Framework members since October 2021.

The Two‐Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy will ensure a fairer distribution of profits and taxing rights among countries and jurisdictions with respect to the world’s largest Multinational Enterprises (MNEs).

The newly agreed Outcome Statement will be delivered to G20 Finance Ministers and Central Bank Governors at their meeting in India next week.

In parallel, technical work will continue so that the MLC can be opened for signature in the second half of 2023, with a signing ceremony organised by year-end. The MLC should enter into force during 2025, allowing for the domestic consultation, legislative, and administrative processes applicable in each jurisdiction.

Further work on Amount B of Pillar One – to be launched next week with a public consultation, through September 1 – is slated for completion by year-end. The Inclusive Framework plans to approve a final report on Amount B and incorporate key content into the OECD Transfer Pricing Guidelines by January 2024. Due consideration will be given to the needs of low-capacity jurisdictions and the interdependence with the MLC.

The agreed documentation relating to the STTR will be published next week, with the Multilateral Instrument implementing the STTR to be released and open for signature from October 2, 2023.

The OECD will also prepare a comprehensive action plan to support the swift and co-ordinated implementation, with additional support and technical assistance to enhance capacity for implementation by developing countries.