The Secretary General of OECD, on 24 July 2024, released its report titled, ‘OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors’. It was published on 25 July, 2024, ahead of their third meeting which was held from 25-26 July at Rio de Janeiro, Brazil.

The report describes key developments in international tax reform since February 2024, including the Two-Pillar solution to address the tax challenges arising from the digitalisation of the economy and the implementation of the BEPS minimum standards. It also covers progress in tax transparency and on tax and development, tax administration and consumption taxes, and dedicated segments on tax and inequality and tax policy developments.

Pillar One

The Secretary-General reported that the members of the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) have secured near complete consensus on the Multilateral Convention to implement Amount A (MLC). The members are also working to resolve the remaining gaps in a framework for Amount B.

Pillar One is comprised of two complementary components: the coordinated reallocation of taxing rights over the profits of the world’s largest and most profitable companies (Amount A); and a framework for enhanced tax certainty and rule simplification relating to transfer pricing for in-country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity jurisdictions (Amount B).

Pillar Two

The Secretary-General reported that around 40 jurisdictions have already implemented or are planning to implement the global minimum tax, which will take effect in January 2024 or 2025.

As per the G20 report, significant progress has also been made on the Subject-to-Tax Rule (STTR). On September 19, 2024, Paris will host the first high-level signing ceremony of the Multilateral Convention to facilitate the implementation of the STTR.

Pillar Two comprises two complementary components: the Global Anti-Base Erosion (GloBE) Rules. 9 and the subject-to-tax rule (STTR), 10 a treaty-based rule that allows a source jurisdiction to “tax back” where taxing rights have been ceded under a tax treaty and payment is subject to a low nominal rate (below 9%) in the residence jurisdiction.

With respect to Pillar Two, the Report notes a considerable achievement: an estimated 40 countries have already implemented or are on track to implement the GloBE rules, and an estimated 60% of large MNEs are expected to be covered by the IIR alone by the end of 2024, rising to 90% by 2025 when the UTPR comes into effect.

Subject-to-tax-rule (STTR)

STTR has taken priority over the GloBE Rules and is designed to help develop Inclusive Framework members and protect their tax base. The global minimum tax ensures that large multinational enterprises pay a minimum tax (at an effective rate of 15%) on their income in each jurisdiction where they operate. This reduces the incentive for profit shifting.

More than 70 developing country members of the Inclusive Framework can now request inclusion of the STTR in their treaties with Inclusive Framework Members that apply corporate income tax rates below 9% to covered payments.

BEPS implementation 

The developments regarding the Base Erosion and Profit Shifting project (BEPS):

• The latest CbC data shows a significant reduction in profit accumulating in investment hubs relative to 2018;
• There is evidence that the introduction of interest limitation rules reduces debt shifting, reducing tax bases in affiliate (source) countries;
• Firms subject to CbCR report higher taxes globally and reduce their presence in low-tax jurisdictions.

Action 13 – Country-by-Country reporting 

Action 13 requires all large multinationals to prepare a country-by-country (CbC) report with aggregate data on the global allocation of income, profit, taxes paid, and economic activity in all tax jurisdictions in which they operate.

The Secretary-General reported the following developments regarding the CbC reporting:

• All MNEs above the EUR 750 million threshold are now covered by a CbC reporting filing obligation, and their information is available;
• Over 115 jurisdictions have introduced CbC legislation;
• Over 3,400 bilateral relationships have been established for the automatic exchange of information on the cross-border operations of multinationals; and,
• 78 Inclusive Framework members are now in a position to receive CbC reports on foreign MNEs.

Action 14 – Mutual Agreement Procedure (MAP) 

The Secretary-General reported the following developments as a result of Action 14:

• 82 jurisdictions have already undergone two stages of peer reviews. A full peer review process is currently underway to assess the progress achieved by 55 of these jurisdictions with meaningful MAP experience in meeting the Action 14 minimum standard;
• 60 jurisdictions with limited or no MAP experience have undergone or are currently undergoing a simplified peer review process, with reports for 20 jurisdictions expected to be published soon; and,
• An additional  32 jurisdictions will undergo this simplified peer review process in the coming months.