Landmark deal reached on global minimum tax

The Organisation for Economic Co-operation and Development (OECD) over the weekend finalized what it called a landmark international tax arrangement for the implementation of a 15 percent global minimum tax for multinational enterprises (MNEs).

The Bahamas is among the 136 jurisdictions around the world that have agreed to the new tax system, which the OECD stated would result in $150 billion in new revenue collected each year.

The global financial watchdog maintained on Friday that the “Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy” policy agreement does not seek to eliminate tax competition, but puts multilaterally agreed limitations on it.

“Countries are aiming to sign a multilateral convention during 2022, with effective implementation in 2023. The convention is already under development and will be the vehicle for implementation of the newly agreed taxing right under Pillar One, as well as for the standstill and removal provisions in relation to all existing digital service taxes and other similar relevant unilateral measures. This will bring more certainty and help ease trade tensions. The OECD will develop model rules for bringing Pillar Two into domestic legislation during 2022, to be effective in 2023,” an OECD statement issued on Friday noted.

“Developing countries, as members of the Inclusive Framework on an equal footing, have played an active role in the negotiations and the Two Pillar Solution contains a number of features to ensure that the concerns of low-capacity countries are addressed. The OECD will ensure the rules can be effectively and efficiently administered, also offering comprehensive capacity building support to countries which need it.”

OECD Secretary General Mathias Cormann said the agreement reached is a major victory that will make international tax arrangements fairer.

“Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest and most profitable multinational enterprises. It will 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 have a physical presence there. Specifically, multinational enterprises with global sales above EUR 20 billion and profitability above 10 percent – that can be considered as the winners of globalization – will be covered by the new rules, with 25 percent of profit above the 10 percent threshold to be reallocated to market jurisdictions,” the OECD stated.

“Under Pillar One, taxing rights on more than US$125 billion of profit are expected to be reallocated to market jurisdictions each year. Developing country revenue gains are expected to be greater than those in more advanced economies, as a proportion of existing revenues.

“Pillar Two introduces a global minimum corporate tax rate set at 15 percent. The new minimum tax rate will apply to companies with revenue above EUR 750 million and is estimated to generate around US$150 billion in additional global tax revenues annually. Further benefits will also arise from the stabilization of the international tax system and the increased tax certainty for taxpayers and tax administrations.”

The agreement comes as the world reels from the recent leak of the Pandora Papers by the International Consortium of Investigative Journalists (ICIJ), which revealed the financial records of some of the world’s richest and most powerful people who have shifted their wealth to jurisdictions to avoid taxation.

Attorney General Ryan Pinder said last week that as a small jurisdiction, The Bahamas has worked hard with limited resources and technical abilities to maintain a vibrant financial services sector and all that is wanted is a level playing field.

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Paige McCartney

Paige joined The Nassau Guardian in 2010 as a television news reporter and anchor. She has covered countless political and social events that have impacted the lives of Bahamians and changed the trajectory of The Bahamas. Paige started working as a business reporter in August 2016. Education: Palm Beach Atlantic University in 2006 with a BA in Radio and Television News

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