Cross-border tax reform to close loopholes for multinationals
Plans to reform cross-border corporate taxation are set to yield more revenue for governments than previously predicted, according to new estimates from the Organisation for Economic Co-operation and Development (OECD).
In October 2021, as many as 136 countries agreed to the OECD’s two-pillar proposed reform of the global taxation system, which is expected to take effect in 2024.
The reform’s goal is to remove loopholes used by multinationals to reduce their tax bill, but this could have far-reaching implications for foreign direct investment.
The first pillar of the reform will reallocate government rights to tax digital corporations based on where they generate their revenue, rather than their physical location.
The second pillar aims to impose a global minimum effective corporate tax rate of 15%.
In an update published on January 18, the OECD said it estimates that the corporate minimum tax is now expected to raise up to $220bn per year, equivalent to 9% of global corporate income tax revenues.
This is a significant increase from the previous estimate of $150bn.
Similarly, the pillar-one reform is now expected to raise around $200bn in additional annual tax revenue from the largest and most profitable multinationals, up from the $125bn previously predicted.
