At the meeting of the G20 Finance Ministers on 4 June 2021 agreement was reached in principle on the two-pillar approach to the tax challenges of the digital economy.
Some important details of the approach still need to be worked out, and more countries must be brought on board. Talks will continue under the guidance of the OECD and further progress is likely to be made on these issues before the July meeting of the G20 Finance Ministers.
Pillar One
Multinationals with a global profit margin of at least 10% would be subject to reallocation of 20% of any profit above the 10% margin, and this would be allocated to the countries in which they operate, using an appropriate formula for calculation of the profits allocated to each operating jurisdiction. Profit reallocation would not depend on the existence of a permanent establishment or other nexus with the country but would be based on criteria related to the actual business operations in each country.
Pillar Two
Under Pillar Two a global minimum corporation tax of at least 15% would be applied, ensuring that multinational enterprises could not reduce their tax to a minimal level by diverting profits to low tax jurisdictions.
Next Steps
The principles agreed will be considered in more detail at the meeting of the G20 Financial Ministers and Central Bank Governors in July 2021.
