Bold new international tax reform

Jul 07, 2021
Transfer pricing
Business tax Pillar two International standards International tax

On June 5, 2021, the G7 agreed to global tax reform measures targeting large multinational companies (MNEs). The tax reform aims to: a) tax multinationals in the countries where they operate; and b) subject multinationals to a global minimum tax rate of at least 15% (the June 5 Agreement).

Less than a month later, 130 countries and jurisdictions, including Canada and the United States, have issued a Statement to work collaboratively to reform the international taxation rules and to ensure that MNEs pay a fair share of tax wherever they operate. In particular, these countries and jurisdictions endorsed the two-pillar approach:

  1. Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies. It would 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 MNEs have a physical presence there.
  2. Pillar Two seeks to introduce a global anti-base erosion rule through the introduction of a global minimum corporate tax rate of 15% that countries can use to protect their tax bases.

The participating nations have set October 2021 as the deadline for finalizing the remaining technical work on the two-pillar approach, with a plan for effective implementation in 2023. 

Middle market companies with significant digital sales or those with low global effective tax rates should carefully review the Statement as the two-pillar approach is likely to impact business decisions.

RSM contributors

  • Nakul Kohli
    Senior Manager

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