138 countries agree historic milestone to implement OECD’s Two‐Pillar Solution

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12 July 2023 138 members of the OECD/G20 Inclusive Framework agreed an Outcome Statement recognising the significant progress made and allowing countries and jurisdictions to move forward with historic, major reform of the international tax system. 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 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 Outcome Statement summarises the package of deliverables developed by the Inclusive Framework to address the remaining elements of the Two‐Pillar Solution:

  • A text of a Multilateral Convention (MLC) developed by the Inclusive Framework, which allows jurisdictions to reallocate and exercise a domestic taxing right over a portion of MNE residual profits (Amount A of Pillar One). The Inclusive Framework will publish the text of the MLC once it has been prepared for signature, upon resolution of a small number of specific items, as a few jurisdictions have expressed concerns with some specific items in the MLC;
  • A proposed framework for the simplified and streamlined application of the arm’s length principle to in-country baseline marketing and distribution activities (Amount B of Pillar One); where input from stakeholders is requested on certain aspects prior to finalisation;
  • The Subject-to-Tax Rule (STTR) together with its implementation framework, which will enable developing countries to update bilateral tax treaties to “tax back” income on certain intra-group income where such income is subject to low or nominal taxation in the other jurisdiction;
  • A comprehensive action plan will be prepared by the OECD to support the swift and co-ordinated implementation of the Two-Pillar Solution, coordinating with regional and international organisations.

In a significant development since October 2021, 138 countries and jurisdictions have also agreed in the Outcome Statement to refrain from imposing newly enacted digital services taxes or relevant similar measures on any company before 31 December 2024, or the entry into force of the MLC if earlier, provided the signature of the MLC has made sufficient progress by the end of the year. This 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.



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