News & Insights

International Tax Reform

The International Tax Reform Hub offers an explanation of the background to proposals for tax reform, together with expert commentary on the current position.

The OECD, in partnership with over 130 member countries, has been working on radical tax reform proposals for several years now. These proposals have the potential to affect many large multinational businesses and will need careful analysis. Ashurst has been following the development of these new rules since their inception and, as further detail emerges, will be well placed to advise businesses on their potential impact and actions which may be necessary. Our global tax team can help you navigate through this period of change.

Why does international tax need reforming?

In light of the increasingly digitalised economy, key concepts and principles underpinning global tax systems are under review.

The current principles of international taxation evolved long before the internet – mainly back in the 1920s - and very much reflect the difficulties back then of selling overseas without a permanent establishment in that other country, and the predominance of physical assets which could not easily be moved around the world for tax reasons.

There has been increasing discontent with the way in which multinationals can use the limitations of these out-of-date rules to minimise their tax burdens in jurisdictions where they generate significant income but can avoid having a sufficient physical presence to trigger tax liabilities. Furthermore, the increasing importance of intangibles has enabled businesses to locate assets in – and shift profits to - low tax jurisdictions, again reducing tax liabilities to levels that are not commensurate with their worldwide profits.

What is proposed?

The Organisation for Economic Development is at the forefront of efforts to reflect these changes in the way businesses now operate and create a more globally cohesive and fair tax system. It has identified two "pillars" on which its proposed solution to taxation of the digital economy would rest:

  1. Pillar One: a new taxing right for market jurisdictions over certain profits of the largest multinationals, whether or not there exists a physical presence there; and
  2. Pillar Two: a global minimum corporation tax rate of 15%.

A corollary to these pillars is that domestic Digital Services Taxes (and relevant similar measures) must be repealed. Many other legislative changes will have to be implemented as a consequence of the adoption of these two pillars, both at national and regional levels (not the least, within the EU) and other repercussions will arise in the coming years. We will provide updates setting out these developments.

Full details of the proposals can be found in the OECD brochure, with comment on these in the below Ashurst articles.

What can Ashurst do to help you?

These OECD proposals represent the most seminal changes for many decades to the way in which larger cross-border businesses are taxed. Final iterations of the two pillars will be hugely complicated, both in scope and application, and the introduction of new measures almost always throws up unexpected consequences - all the more so where there are multiple interactions across borders. Ashurst has been following the development of these new rules since their inception and, as further detail emerges, will be well placed to advise businesses on their potential impact and actions which may be necessary. Our global tax team can help you navigate through this period of change.

Timeline

  • 2024

    'Undertaxed Payments Rule' to be introduced to strengthen Pillar Two

  • 2024
  • 2023

    Implementation date

  • 2023
  • Mid-2022

    Multilateral Instrument to facilitate implementation of the 'Subject to Tax Rule' (part of Pillar Two) into relevant bilateral treaties

  • February 2022

    Multilateral Convention for the implementation of Pillar One to be finalised

  • 2022
  • November/December 2021

    Resolution on final technical details expected, including model rules giving effect to Pillar Two

  • October 2021

    Detailed implementation plan issued as part of a further statement, with further key details revealed

  • July 2021

    Statement on the Two-Pillar Solution released with some key details agreed

  • 2021
  • October 2020

    Publication of "blueprints" for a two-pillar solution

  • 2017–2020

    Active discussions and consultation documents on how to address the tax challenges of the digitalisation of the economy

  • 2017–2020
  • 2015

    Adoption of the Base Erosion and Profit Shifting (BEPS) package of 15 actions to counter global tax avoidance. Action 1 deals with the digitalisation of the economy but makes no recommendations at this stage.

  • 2015
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Read our latest tax reform updates

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The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.

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