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International Tax Reform: G20 / OECD Two-Pillar Solution

Published 07 Feb 2022
Reference 6727
Industry Banking
Region Global
Summary

In a historic agreement on 8 October 2021, 136 countries approved the OECD two-pillar solution in a major overhaul of the century-old international taxation system. At the G20 Summit in Rome on 30 October 2021, the leaders of the world’s biggest economies endorsed the two-pillar solution, decades in the making but which will be implemented in 2023. The new agreement will overcome the tax challenges arising from the digital economy and will ensure that big businesses pay a fair share of taxes on profits from market jurisdictions where they operate. The case explores the two parts, placing a global minimum corporate tax rate of 15% on the profits of the world’s largest businesses; and shifting tax revenues to market jurisdictions where large businesses have their customers and sell their products. Protagonist Janet Yellen, Secretary of the US Treasury, played an instrumental role in getting reluctant finance ministers on board. President Joe Biden supported the OECD plan in part because it will stop growing tensions between G20 countries over digital service taxes.

Teaching objectives

The case can easily be taught to students interested in public finance models. The case raises questions about the bilateral relationship between the State and its corporate tax payers and the multilateral relationship between the States where the world’s largest companies have their headquarters and the States where the world’s largest companies have their customers. It also raises questions about the multilateral relationships between States having high or average tax regimes and tax havens. Students can discuss where corporate tax revenues come from and how and where they are collected . In addition, the case explores the role of the OECD in addressing international tax challenges and providing a coordinated intergovernmental solution to an outdated corporate taxation system.

Keywords
  • OECD
  • Pillar One
  • 15% Global Minimum Tax Rate
  • Pillar Two
  • Tax Incentives
  • Tax Avoidance
  • Digital Service Tax
  • Janet Yellen
  • Tax Havens
  • BEPS
  • Profit Shifting
  • Two-Pillar Solution
  • Market Jurisdictions
  • Corporate Tax Revenues
  • Q12022
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