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OECD ups the estimated revenue gains from global minimum tax

Updated: Apr 9

The OECD has raised estimates for additional tax revenues from its proposed two pillar solution for global corporate tax reform.

The two elements aim to address the tax challenges from the digitalisation and globalisation of the economy by reallocating certain taxing rights to market jurisdictions, where profits are created through sales, and seek to limit tax competition through the creation of a global 15% minimum effective corporate income tax rate.

The organisation said a new analysis now estimates the global minimum tax would result in annual global revenue gains of around US$220 billion, or 9% of global corporate income tax revenues.

An earlier economic impact analysis had put the additional tax revenue from the minimum tax component of Pillar Two at just US$150 billion globally.

Pillar One, designed to ensure a fairer distribution of taxing rights among jurisdictions over the largest and most profitable multinational enterprises (MNEs), in turn, is now expected to allocate taxing rights on about US$200 billion in profits to market jurisdictions annually.

However, additional tax revenues from Pillar One remain limited at an estimated $13 to $36 billion, based on data from last year.

According to the analysis, low- and middle-income countries stand to gain the most as a share of existing tax revenues.

The update to the OECD’s earlier assessments, including its economic impact assessment issued in October 2020, indicates that projected revenue gains under Pillar One have increased, and continue to rise over time, due to both revisions to the design of the tax reform and increased profitability of multinationals that fall under the proposed rules.

It also shows increased projected revenue gains from Pillar Two, which reflects some increases in global low-taxed profit, including as a result of improved data coverage, the OECD said.

In a press release, OECD Secretary-General Mathias Cormann said the international community had made significant progress towards the implementation of these reforms, “which are designed to make our international tax arrangements fairer and work better in a digitalised, globalised world economy”.

The new economic impact analysis again underlined the importance of a swift, efficient and widespread implementation of these reforms to ensure these significant potential revenue gains can be realised, he said.

“Widespread implementation will also help stabilise the international tax system, enhance tax certainty and avert the proliferation of unilateral digital services taxes and associated tax and trade disputes, which would be bad for the global economy and economies around the world.”

The new estimates on the economic impact of the two-pillar solution are based on updated data and incorporate most of the recently agreed design features, many of which had not been accounted for in other studies, the OECD said.

A full economic impact analysis as well as a detailed methodology report will be released in the coming months.

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