On 11 October 2023, the Organisation for Economic Cooperation and Development (OECD) released the text of the new Multilateral Convention to Implement Amount A of Pillar One. It aims to update the international tax framework to coordinate a reallocation of taxing rights to market jurisdictions, improve tax certainty, and remove digital service taxes. This is part of the ongoing work of the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS) in implementing the two-pillar solution to address the tax challenges arising from the digitalisation of the economy.
As explained by the OECD releaseopens in a new tab:
- The Multilateral Convention to Implement Amount A of Pillar Oneopens in a new tab (MLC), which provides for a coordinated system of taxation and sets out the substantive features necessary for it to be prepared for signature (including its scope and operation), is accompanied by an Explanatory Statementopens in a new tab, an Understanding on the Application of Certain of Amount Aopens in a new tab and an Overviewopens in a new tab;
- In addition, the OECD released an update to the economic impact assessment of Pillar Oneopens in a new tab, which estimates that taxing rights on about USD 200 billion in profits are expected to be reallocated to market jurisdictions each year under Pillar One. This is expected to lead to an increase in annual global tax revenue of between USD 17 – 32 billion (based on 2021 data), with low and middle-income countries expected to gain the most as a share of existing corporate income tax revenues;
- The MLC reflects the current consensus achieved among members of the G20 Inclusive Framework, although there are different views on a handful of specific items noted in footnotes by a small number of jurisdictions, who are constructively engaged in resolving these differences; and
- The MLC was delivered to G20 Finance Ministers and Central Bank Governors in a new OECD Secretary-General tax report ahead of their meeting in Morocco this month.
The MLC also contains a list of existing unilateral measures which would be subject to removal including inter alia the UK Digital Services Tax (UK DST). No formal announcements by the UK Government have yet been made subsequent to the standstill agreement released on 21 October 2021 confirming that the UK DST would be withdrawn once the new Pillar One rules come into force.
The US Treasury Department also announced on 11 October a request for public input by 11 December 2023 on the MLC and accompanying documents.
Implementation handbook for Pillar Two global minimum tax
The OECD also on 11 October released a new Minimum Tax Implementation Handbookopens in a new tab to assist governments as they consider moving forward with the global minimum tax under Pillar Two. It provides an overview of the key provisions of the rules and the considerations to be taken into account by tax policy and administration officials and other stakeholders in assessing implementation options.
