The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) agreement is based on the OECD’s two-pillar approach that aims to ensure multinationals pay their fair share of tax in the countries they operate in. Out of 140 members of the OECD/G20 Inclusive Framework on BEPS, 136 agreed to introduce the new tax system.  The two-pillar approach is one of nexus and profit allocation and another of ensuring a minimum level of taxation of at least 15%. Under pillar one, multinationals with global sales above €20 billion and profitability above 10% will be covered by the new rules, with 25% of profit above the 10% threshold to be reallocated to market jurisdictions. Meanwhile, under pillar two, the new minimum tax rate will apply to companies with revenue above €750 million. The agreement states that both pillars combined could increase global tax income revenue by $125-$150 billion annually. “Today’s agreement will make our international tax arrangements fairer and work better,” former Australian Minister for Finance and now OECD Secretary-General Mathias Cormann said.
“This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalised and globalised world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform.” Overhauling the international tax system under the agreement was first flagged in July. At the time, 130 countries including China, United States, United Kingdom, Russia, Australia, Brazil, and India had signed up to it. Since then, Estonia, Hungary, and Ireland have also joined the agreement. The countries are aiming to sign a multilateral convention during 2022, with effective implementation in 2023. The only countries that have yet to join the agreement are Kenya, Nigeria, Pakistan, and Sri Lanka.
United States Treasury Secretary Janet Yellen described the agreement as a “once-in-a-generation accomplishment for economic diplomacy”. It comes after US President Joe Biden laid out in April his corporate tax reform plans, vowing the tax rate in the US would be raised from 21% to 28%. A week later, Yellen said the US would work with other G20 countries to set a minimum corporate tax rate. Australia Treasurer Josh Frydenberg also welcomed the global tax agreement, saying the “significant progress … will help ensure that multinationals pay their fair share of tax in Australia and abroad”.   Australia introduced multinational anti-avoidance laws back in 2016. Under those laws, companies operating with an annual global income of more than AU$1 billion in Australia are required to lodge their general purpose financial statements to the Australian Taxation Office, if they are not already doing so with the Australian Securities and Investments Commission. The introduction of the agreement follows the footsteps of the G7 nations that agreed in June to introduce a global minimum corporate tax rate of at least 15%. At the time, the G7 finance ministers said the tax rate would be used to target “the largest and most profitable multinational enterprises”, and that they would meet the G20 finance ministers and central bank governors this month to see whether its agreement could gain broader support from other countries.