Global Tax Pact Would Yield Much Higher Revenue Than Previously Expected, OECD Says

On 18 January 2023, the OECD released new analysis predicting government revenue gains from implementing its two-pillar global tax plan would be significantly higher than initially estimated.

The OECD estimates that the corporate minimum tax is now expected to raise up to USD 220 billion per year, equivalent to 9% of global corporate income tax revenues. This is a significant increase from the previous estimate of USD 150 billion attributed to Pillar Two.

Similarly, the Pillar One reform is now expected to raise around USD 200 billion, in additional annual tax revenue from the largest and most profitable multinationals, up from the USD 125 billion previously predicted.

The OECD-led two-pillar solution to address the tax challenges arising from the digitalization and globalization of the economy will lead to additional taxing rights for market jurisdictions and put a floor on tax competition through the creation of a global 15% minimum effective corporate income tax rate.

"The international community has made significant progress towards the implementation of these reforms, which are designed to make our international tax arrangements fairer and work better in a digitalized, globalized world economy," OECD Secretary-General Mathias Cormann said during the release of the new analysis. "This new economic impact analysis again underlines the importance of a swift, efficient and widespread implementation of these reforms to ensure these significant potential revenue gains can be realized."

From a UK perspective, Chris Danes (Tax Partner, MHA, Global Tax Solutions) adds, "The new tax revenue expected to be generated from Pillar One and Two demonstrates how monumental these rules will be, starting from 1 January 2024, and highlight how important it is for all businesses with a significant global footprint to assess the impact of these rules and plan accordingly from a budgeting, resourcing, reporting and stakeholder management perspective."

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 included in the Amount A Progress Report and the GloBE Model Rules, many of which have not been accounted for in other studies.

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

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For more information on the BEPS tax framework or other corporate international tax matters, please Contact Us, or email Chris Denning or Chris Danes from our International Tax team, who will be happy to assist:

Chris Denning, Head of Corporate International Tax: [email protected]
Chris Danes, Tax Partner: [email protected]

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