CANBERRA, AAP – A new global plan to ensure big multinationals pay their fair share of tax is expected to be operating in 2023.
OECD Secretary-General Mathias Cormann will tell the ANU Crawford Leadership Forum on Monday work on the plan is well progressed and it is hoped to be presented to leaders at the G20 summit in Rome at the end of October.
The former Australian finance minister said while globalisation and digitalisation brought great benefits to the world, they also came with risk and disruptions.
“It is very important we ensure that large mulitinational digital businesses – and all large businesses in fact – pay their fair share of tax in the markets in which they operate and generate their profits,” Mr Cormann said in a video message to the forum.
He said the current outdated tax rules had allowed too many large multinationals to “earn significant income in market jurisdictions around the world without having to pay any or very little corporate income tax there”.
These distortions needed to be addressed in a multilaterally agreed way, which is where the two-pillar approach – initially given the tick at a G20 finance ministers meeting earlier in the year – came in.
The “Pillar one” portion of the agreement would end unilateral taxes on digital services in exchange for a new mechanism that would allow large profitable companies to be taxed in part based on where they sell products and services, rather than where their headquarters and intellectual property reside.
The “Pillar two” section addresses concerns that countries are competing for inbound investment through low, or no, corporation tax rates.
It proposes the introduction of a global minimum tax rate, agreed politically to be “at least” 15 per cent, and other mechanisms to promote global anti-base erosion measures.
Mr Cormann said the two pillars, which together could generate as much as $US250 billion a year in extra revenue, now had the support of 133 countries.
He said once G20 leaders gave it the nod, model legislation and guidance could be provided in 2022 with “practical implementation from 2023 onwards”.
The OECD chief said work was also progressing on competition reform to respond to changes in digital markets and emerging problems including “algorithmic collusion”.
As well, greater understanding is needed in terms of data flows and privacy.
“Data flows with trust is a very important priority for the OECD,” he said.